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Court Preview: Activists Expose Net Neutrality’s Biggest Legal Problems

Do not let the FCC’s likely unlawful means of broadband Internet regulation, i.e. Title II, distract you from the additional likelihood that two primary ends of supposed net neutrality “policy canon” i.e. bans against “paid prioritization” and “two-sided markets” (only users should pay), are also likely unlawful, even under Title II, sans new legislation.

A preview of oral arguments December 4 before the D.C. Circuit Court of Appeals in the legal challenge to the FCC’s 2015 Open Internet Order warrants more than the already well-covered standard comparison of both sides legal arguments over the legality of Title II.

In the 2014 Verizon v. FCC decision, that overturned much of the FCC’s net neutrality “effort to compel broadband providers to treat all Internet traffic the same regardless of source,” Judge David Tatel’s starting point was what does the FCC want to compel from others and does it have the legal authority and latitude to do so – sans new legislation.

(This analysis assumes the near obvious that Judge Tatel will lead and write this decision.)   

If Judge Tatel approaches the starting point of this case, consistent with his net neutrality starting point in his Verizon v. FCC decision, it is highly problematic for the FCC. That is because what the FCC explicitly wants to do at core with net neutrality is still likely unlawful -- even under Title II.

I believe the conventional wisdom of net neutrality activists -- that Title II gives the FCC sufficient authority to ban “paid prioritization” and “two-sided markets” -- may be “politically correct,” but not legally correct..

Why is net neutrality activists’ Title II conventional wisdom wrong?

First, an FCC ban on “paid prioritization,” aka “zero pricing,” unreasonably mandates a permanent price of zero for all downstream Internet traffic from the edge to an ISP with no ISP cost recovery for the traffic delivery service.

While Title II could give the FCC “reasonable” pricing authority, FCC and other utility tariff case precedents have long established what is “reasonable” under common carrier regulation.

The government compelling a regulated entity to provide a service free, with no cost recovery is not something tariff precedents have found “reasonable.” (See George Ford’s and Larry Spiwak’s Phoenix Center paper: here.)

Second, an FCC Title II ban against a “two-sided market” for Internet service is an arbitrary/unreasonable classification/treatment of similarly situated services when Title II has long embraced two-sided markets with collect and 1-800 calls, yellow pages advertising, etc.

Economically, bans on payment for downstream Internet traffic and a two-sided market, combine to compel a particular economic business model/entitlement that arbitrarily and politically redistributes and socially engineers the Internet’s economic costs and benefits between edge providers and users. (See paper by net neutrality activist Tim Wu entitled: “Subsidizing Creativity Through Network Design: Zero Pricing and Net Neutrality.”)

What does the FCC’s process tells us about the order’s biggest legal problems?

Here is an important assumption in my analysis.

Since Chairman Wheeler is not trained as a lawyer like his predecessors have been, I assume he has relied heavily on the legal judgment of the FCC’s General Counsel Jonathan Sallet, the Chairman’s senior staff lawyers and the bureaus’ best staff lawyers to determine the FCC’s best legal strategy to win in court.    

Thus, it is telling and important to remember that the FCC’s best legal talent recommended against pursuing a Title II legal strategy to bolster the legal viability of the current Open Internet Order upon appeal.

The FCC’s legal staff recommended following Judge Tatel’s gift-wrapped, legal guide in Verizon v. FCC to the letter in order to uphold the FCC’s net neutrality authority under its newly-minted positive Section 706 authority.

Chairman Wheeler and his legal team chose to take the proverbial bird in hand over chasing the [Title] two birds in the bush. 

It was a wise approach in that the FCC very likely could have secured roughly 75% of the practical authority it sought, but importantly could not deliver what net neutrality activists apparently most wanted – the bans on paid prioritization and two-sided markets -- that I spotlighted above.

Simply, net neutrality activists politically pushed the FCC Chairman and his legal staff to go legally where they did not want to go, on both the NPRM in May 2014 and in the final order in 2015.

They even got the President of the United States to publicly and specifically urge for the FCC to pursue a Title II FCC legal strategy “to implement the strongest possible rules to protect net neutrality.”

The FCC’s legal team, from no fault of their own must now go before Judge Tatel with a third attempt to implement the FCC’s net neutrality policy, by effectively biting the hand that fed them a viable legal strategy to avoid losing in court a third time in a row for serially overreaching.   

The legal risk that outside political forces thrust on the FCC’s legal team only got worse just a week before the FCC’s February 2015 vote on the order.

A lavishingly-self-serving and FCC-torpedo-ing February 20, 2015 Google ex parte (followed by apparent White House lobbying) effectively took net neutrality activists legal bullying of the FCC’s legal team to yet another appalling level of outside interference with a supposed independent agency.

Google asked for, and ultimately got in the FCC Open Internet Order, that the FCC not classify the service between a broadband provider and an edge provider like Google as a Title II carrier service.

Google went so far in its ex parte, to urge the FCC to challenge Judge Tatel’s gift in Verizon v. FCC by asserting Judge Tatel’s core analysis of how common carrier services work in Verizon v. FCC created an “imagined edge provider access service”… “a non-existent edge provider service”… and “without reference to any evidence, that “broadband providers furnish a service to edge providers”…”

Conclusion

In throwing their White House political weight around to get the FCC to do what the FCC’s legal team did not think was ultimately lawful, net neutrality pressure groups, Google and the Internet Association put a blinking neon spotlight on what they thought was necessary to achieve their net neutrality ideal.

However, two times already, in Comcast v. FCC in 2010 and in Verizon v. FCC in 2014, the D.C. Circuit Court of Appeals ruled the FCC overreached its existing authority to enforce so-called “net neutrality.”

The point of this preview before the oral arguments is for people to look for how the presiding D.C. Circuit Appeals Court Judges: David Tatel, Stephen Williams, and Sri Srinivasan, think about the new core net neutrality canon (bans on paid prioritization and two-sided markets) that net neutrality activists now covet and the Verizon Court had the most trouble with.

Those are the most likely proverbial irresistible forces meeting the immovable objects.

These two unreasonable commercial behavior net neutrality bans, in addition to the FCC ignoring Congress’ double immunity of wireless broadband from common carrier regulation, is where the FCC is most reliably vulnerable.

There are also many other ways the FCC could have serious legal problems with this albatross of an order.

My core takeaway here is that after oral arguments, reasonable net neutrality activists should have more interest in seeking a legislative net neutrality solution in Congress soonest, because their net neutrality ideal is at substantial risk when Judge Tatel’s likely decision comes down in roughly the March 2016  timeframe.

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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.

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FCC Open Internet Order Series

Part 1: The Many Vulnerabilities of an Open Internet [9-24-09]

Part 2: Why FCC proposed net neutrality regs unconstitutional, NPR Online Op-ed [9-24-09]

Part 3: Takeaways from FCC's Proposed Open Internet Regs [10-22-09]

Part 4: How FCC Regulation Would Change the Internet [10-30-09]

Part 5: Is FCC Declaring 'Open Season' on Internet Freedom? [11-17-09]

Part 6: Critical Gaps in FCC’s Proposed Open Internet Regulations [11-30-09]

Part 7: Takeaways from the FCC's Open Internet Further Inquiry [9-2-10]

Part 8: An FCC "Data-Driven" Double Standard? [10-27-10]

Part 9: Election Takeaways for the FCC [11-3-10]

Part 10: Irony of Little Openness in FCC Open Internet Reg-making [11-19-10]

Part 11: FCC Regulating Internet to Prevent Companies from Regulating Internet [11-22-10]

Part 12: Where is the FCC's Legitimacy? [11-22-10]

Part 13: Will FCC Preserve or Change the Internet? [12-17-10]

Part 14: FCC Internet Price Regulation & Micro-management? [12-20-10]

Part 15: FCC Open Internet Decision Take-aways [12-21-10]

Part 16: FCC Defines Broadband Service as "BIAS"-ed [12-22-10]

Part 17: Why FCC's Net Regs Need Administration/Congressional Regulatory Review [1-3-11]

Part 18: Welcome to the FCC-Centric Internet [1-25-11]

Part 19: FCC's Net Regs in Conflict with President's Pledges [1-26-11]

Part 20: Will FCC Respect President's Call for "Least Burdensome" Regulation? [2-3-11]

Part 21: FCC's In Search of Relevance in 706 Report [5-23-11]

Part 22: The FCC's public wireless network blocks lawful Internet traffic [6-13-11]

Part 23: Why FCC Net Neutrality Regs Are So Vulnerable [9-8-11]

Part 24: Why Verizon Wins Appeal of FCC's Net Regs [9-30-11]

Part 25: Supreme Court likely to leash FCC to the law [10-10-12]

Part 26: What Court Data Roaming Decision Means for FCC Open Internet Order [12-4-12]

Part 27: Oops! Crawford’s Model Broadband Nation, Korea, Opposes Net Neutrality [2-26-13]

Part 28: Little Impact on FCC Open Internet Order from SCOTUS Chevron Decision [5-21-13]

Part 29: More Legal Trouble for FCC’s Open Internet Order & Net Neutrality [6-2-13]

Part 30: U.S. Competition Beats EU Regulation in Broadband Race [6-21-13]

Part 31: Defending Google Fiber’s Reasonable Network Management [7-30-13]

Part 32: Capricious Net Neutrality Charges [8-7-13]

Part 33: Why FCC won’t pass Appeals Court’s oral exam [9-2-13]

Part 34: 5 BIG Implications from Court Signals on Net Neutrality – A Special Report [9-13-13]

Part 35: Dial-up Rules for the Broadband Age? My Daily Caller Op-ed [11-6-13]

Part 36: Nattering Net Neutrality Nonsense Over AT&T's Sponsored Data Offering [1-6-14]

Part 37: Is Net Neutrality Trying to Mutate into an Economic Entitlement? [1-12-14]

Part 38: Why Professor Crawford Has Title II Reclassification All Wrong [1-16-14]

Part 39: Title II Reclassification Would Violate President's Executive Order [1-22-14]

Part 40: The Narrowing Net Neutrality Dispute [2-24-14]

Part 41: FCC’s Open Internet Order Do-over – Key Going Forward Takeaways [3-5-14]

Part 43: The Multi-speed Internet is Getting More Faster Speeds [4-28-14]

Part 44: Reality Check on the Electoral Politics of Net Neutrality [5-2-14]

Part 45: The “Aristechracy” Demands Consumers Subsidize Their Net Neutrality Free Lunch [5-8-14]

Part 46: Read AT&T’s Filing that Totally Debunks Title II Reclassification [5-9-14]

Part 47: Statement on FCC Open Internet NPRM [5-15-14]

Part 48: Net Neutrality Rhetoric: “Believe it or not!” [5-16-14]

Part 49: Top Ten Reasons Broadband Internet is not a Public Utility [5-20-14]

Part 50: Top Ten Reasons to Oppose Broadband Utility Regulation [5-28-14]

Part 51: Google’s Title II Utility Regulation Risks – An Open Letter to Investors [6-3-14]

Part 52:  Exposing Netflix’ Biggest Net Neutrality Deceptions [6-5-14]

Part 53: Silicon Valley Naïve on Broadband Regulation (3 min video) [6-15-14]

Part 54: FCC’s Netflix Internet Peering Inquiry – Top Ten Questions [6-17-14]

Part 55: Interconnection is Different for Internet than Railroads or Electricity [6-26-14]

Part 56: Top Ten Failures of FCC Title II Utility Regulation [7-7-14]

Part 57: NetCompetition Statement & Comments on FCC Open Internet Order Remand [7-11-14]

Part 58: MD Rules Uber is a Common Carrier – Will FCC Agree? [8-6-14]

Part 59: Internet Peering Doesn’t Need Fixing – NetComp CommActUpdate Submission [8-11-14]

Part 60: Why is Silicon Valley Rebranding/Redefining Net Neutrality?  [9-2-14]

Part 61: the FCC’s Redefinition of Broadband Competition [9-4-14]

Part 62: NetCompetition Comments to FCC Opposing Title II Utility Regulation of Broadband [9-9-14]

Part 63: De-competition De-competition De-competition [9-14-14]

Part 64: The Forgotten Consumer in the Fast Lane Net Neutrality Debate [9-18-14]

Part 65: FTC Implicitly Urges FCC to Not Reclassify Broadband as a Utility [9-23-14] 

Part 66: Evaluating the Title II Rainbow of Proposals for the FCC to Go Nuclear [9-29-14]

Part 67: Why Waxman’s FCC Internet Utility Regulation Plan Would Be Unlawful [10-5-14]

Part 68: Silicon Valley’s Biggest Internet Mistake [10-15-14]

Part 69: Will the FCC Break the Internet? [10-22-14]

Part 70: Net Neutrality Has Become an Industrial Policy [10-31-14]

Part 71:  The Federal Communications Congress? [11-8-14]

Part 72:  NetCompetition on President’s Call for Title II Utility Regulation [11-10-14]

Part 73:  Top Ten Adjectives to Describe FCC Title II Net Neutrality Regulation [11-11-14]

Part 74:  Top Ten Questions to Ask About Title II Utility Regulation of the Internet [11-20-14]

Part 75:  The Only Legitimate FCC Hybrid Net Neutrality Approach [12-1-14]

Part 76:  Who Pays for Net Neutrality? [12-3-14]

Part 77:  Top Ten Deficiencies in FCC’s Title II Record [12-8-14]

Part 78:  FCC Title II Internet Regulation “Believe it or Not!” [12-17-14]

Part 79:  FCC is Unnecessarily Undermining its Legitimacy [12-18-14]

Part 80:  Will FCC Grant Congress Legislative Deference? [1-2-15] 

Part 81: Internet Association Perfecting Crony Capitalism with its Title II Position [1-13-15]

Part 82: NetCompetition Statement on New FCC Net Neutrality Legislation [1-16-15]

Part 83: NetCompetition on FCC Publicly Sharing its Proposed Open Internet Order [1-23-15]

Part 84: The FCC’s De-Americanization of the Internet [1-25-15]

Part 85: Testing the FCC’s Net Neutrality Political Calculus [1-28-15]

Part 86: Net Neutrality Bait & Switch to Title II [2-3-15]

Part 87: Cleland on NPR KQED Forum Debating EFF Rep on FCC Title II [2-5-15]

Part 88: Google’s FCC Title II Privacy Liability Nightmare [2-6-15]

Part 89: FCC Internet Utility Regulation Is a Really Stupid Idea [2-9-15]

Part 90: The FCC Is Not Neutral [2-17-15]

Part 91: America’s Title II Protectionism Will Hurt Google & Silicon Valley in EU [2-19-15]

Part 92: The FCC’s Predictable Fiasco of Internet Utility Regulation [2-24-15]

Part 93: NetCompetition Statement on FCC Title II Internet Utility Regulation [2-26-15]

Part 94: Why FCC Will Lose in Court on Title II (80%) – A Legal House of Cards -- A White Paper [3-2-15]

Part 95: FCC Title II Protectionism Creates a U.S. Digital Single Market like EU’s [3-11-15]

Part 96: NetCompetition on FCC Title II Internet Order [3-12-15]

Part 97: FCC’s Title II Legal Case is Modern Version of “The Emperor Has No Clothes” [3-16-15]

Part 98: NetCompetition Hill Event: Unnecessary Collateral Damage from FCC’s Title II Internet [3-25-15]

Part 99: Unnecessary Collateral Damage from FCC Title II Internet Regulation [3-26-15]

Part 100: FCC Detours Innovation to Government Slow Lane [4-7-15]

Part 101: Nationalistic Net Neutrality Naiveté [4-10-15]

Part 102: FCC-ville's Kangaroo Court [4-22-15]

Part 103: ObamaNet vs EuroNet -- “Competing” Protectionist Industrial Policies [4-24-15]

Part 104: FCC’s New Do Not Track List Authority [4-27-15]

Part 105: Expect Court to Partially Stay FCC’s Title II Internet Reclassification [5-4-15]

Part 106: Why Court Very Likely Will Stay FCC’s Title II Reclassification [5-14-15]

Part 107: How FCC Hurt Its Title II Anti-Stay Case [5-27-15]

Part 108: Three Big FCC Title II Privacy Questions – My Multichannel News Op-ed [6-9-15]

Part 109: Will FCC Lock-in Net Neutrality Gains in Legislation or Risk All in Court & Ballot Box? [6-12-15]

Part 110: FCC’s “Gotcha” Game of ISP Regulation & Enforcement [6-15-15]

Part 111: FCC Changed “Can-do” Internet into “Can’t-do” Internet [6-23-15]

Part 112: The FCC has Lost Its Credibility Internationally [7-6-15]

Part 113: The FCC’s Title II Trifecta Gamble [7-13-15]

Part 114: The Market’s Ignoring Google’s Many New FCC Common Carrier Liabilities [7-29-15]

Part 115: Unlicensed Spectrum Needs No New FCC Regulation [8-3-15]

Part 116: America’s Upside Down Cyber-Priorities [8-17-15]

Part 117: The FCC Built its Net Neutrality House on Legal Sand [9-14-15]

Part 118: The FCC’s Reasonable Unreasonableness? – A Satire [9-18-15]

Part 119: Google’s Internet Association Hypocritically Begs Digital Protectionism [9-23-15]

Q&A One Pager Debunking Net Neutrality Myths