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FCC’s Title II Legal Case is Modern Version of “The Emperor Has No Clothes”

 

I.   Summary

Expect the FCC’s new Open Internet Order’s assertion of Title II authority ultimately to be rejected in court (90%), because of its core illegal confiscatory purpose and its serial ends-justify-the-means trampling of due process. 

The FCC’s Title II legal defense is a “modern” day version of “the Emperor has no clothesfable, where the vain FCC confidently parades in public clothed in the legal fabric that utopian legal alchemists have convinced the FCC is invisible only to those who are “hopelessly stupid” or “unfit for their positions.” Sadly, this emperor (the FCC) has no clothes (sustainable legal case).

After reading the FCC’s order, I increase the odds of the courts ultimately rejecting the FCC’s assertion of Title II authority from the 80% probability level in my 3-2-15 White PaperA Legal House of Cards” to 90% now because many of the eight conceptual legal flaws I spotlighted previously are worse than I anticipated.

This FCC Title II legal case and process is an obvious mess. It is the functional legal equivalent of a parent getting caught doing something wrong and then scolding an inquisitive child with “because I say so” answers -- over and over again.  

For the FCC to prevail, it needs the courts to politically rubber stamp the FCC’s unquestioned and unlimited assumption of “Chevron Deference” not only for interpreting ambiguous law, but for their ends-justify-the-means take on most every building block of the FCC’s legal case.     

In a nutshell, the FCC’s core purpose for asserting Title II authority is to permanently ban any price/compensation for edge downstream Internet service, which is illegally confiscatory. And the FCC’s Title II legal case is built upon de facto claims of legal immunity to disregard due process, the law, facts, definitions, precedents, fair notice, reliance interests and proportionality.

Simply the FCC seeks an illegal end via multiple illegal means, and serial sweeping “Chevron Deference” to evade legal and constitutional accountability. Multiple wrongs do not make a right.        

The rest of this analysis will answer three questions central to anticipating the likely legal outcome of the FCC’s assertion of Title II authority. How could this FCC legal charade happen? Why is the FCC’s core purpose illegal? And what are the FCC’s Title II serial ends-justify-the-means violations of due process?  

 

II.  How could this FCC legal charade happen?

This is actually not the third, but the FCC’s fourth proposed legal theory to assert direct authority to regulate the Internet. The first three cases, by three different FCC Chairman and their General Counsels -- Martin in 2008, Genachowski in 2010, and Wheeler initially in early 2014 -- all decided that Title II reclassification was not likely a legally sustainable source of FCC authority.   

The first two legal cases failed in court, Chairman Martin’s in Comcast v. FCC in 2010, and Chairman Genachowski’s in Verizon v. FCC in 2014.

Many forget that the third proposed FCC legal case was Chairman Wheeler’s in February of last year.    

In response to the FCC’s loss in Verizon v. FCC, FCC Chairman Wheeler stated February 19, 2014 that the FCC would not appeal and would accept the Court’s “invitation by proposing rules that will meet the court’s test for preventing improper blocking of and discrimination among Internet traffic…” under Section 706 of the Telecommunications Act of 1996.

Thus Chairman Tom Wheeler and his General Counsel Jonathan Sallet originally did not believe that Title II reclassification was a legally sustainable legal alternative to solve the FCC’s net neutrality legal authority problem. In late April 2014, FCC Chairman Wheeler continued to reject Title II reclassification as a source of FCC legal authority in his proposed draft NPRM for his fellow commissioners’ review.

However, after a widely-reported lobbying campaign for Title II reclassification of broadband, the FCC passed an NPRM 3-2 in May 2014, which included consideration of Title II reclassification as a potential source of FCC legal authority. 

In a November 2014 public call for FCC regulation of the Internet as a utility, President Obama publicly and specifically urged: “I believe the FCC should reclassify consumer broadband service under Title II of the Telecommunications Act,” which is exactly what the FCC majority dutifully voted to do February 26th.

Simply, the FCC decided to reclassify the Internet as Title II “telecommunications” not based on its independent, objective, expert legal opinion, but based on outside political pressure.

Here is the crux of my 90% confidence that the FCC’s legal case will crumble under scrutiny in court.

The FCC’s decision to reclassify is wholly predicated on the FCC political imperative (or “end”) to find some new assert-able FCC legal authority to ban paid prioritization or fast-lanes (i.e. economically impose a permanent “price of zero” for edge downstream traffic without cost recovery). That’s because Verizon v. FCC(page 60) ruled that the FCC did not have authority under Section 706 “to impose per se common carrier obligations.”

Political pressure to turn currently-illegal zero-price regulation into legal anti-discrimination regulation without the involvement of Congress or new legislation, created immense political pressure for FCC lawyers to justify using most any “means” necessary to justify the desired political “end.”

Thus whenever the FCC encounters a fact, definition, precedent, law or constitutional principle that contradicts or thwarts the FCC’s desired end, the FCC serially dismisses them with claims of agency discretion allowed by various court precedents.

However, the FCC’s expectation of deference in this case is so cumulatively serial and sweeping -- in reversing a plethora of legally-settled findings of fact, definitions, precedent, law and constitutional interpretation -- that a court could ask sarcastically what role the FCC believes remains for the Judicial Branch to adjudicate?    

 

III.  Why is the FCC’s core purpose illegal?  

The core controversial purpose of this FCC’s concept of Title II net neutrality is that the Internet should be a de facto economic digital commons, created via a de facto FCC-set price-of-zero for all edge Internet downstream service with no opportunity for ISP cost recovery or profit. The FCC’s new euphemisms for banning any compensation for edge downstream Internet traffic are a ban on “paid prioritization,” or “fast lanes.”

The FCC claims no direct statutory authority to compel service delivery at a permanent price of zero with no opportunity for cost recovery, and the FCC cites no upheld Title II precedent that ruled an FCC-set price-of-zero with no opportunity for cost recovery as “just and reasonable” under Title II Section 201.

Moreover, nowhere in the FCC’s order is there any discussion of how the FCC expects a compelled Broadband Internet Service Provider is supposed to recover its costs for permanently providing free downstream Internet traffic to the largest edge providers.

Thus the FCC order’s underlying zero-pricing economic purpose, which compels an entity to permanently furnish a costly service at no cost, is illegally confiscatory, and a de facto regulatory takings with no constitutionally-required just compensation.

In addition, a common sense understanding of economics dictates that a permanent price-of-zero without cost recovery is economically unsustainable and destructive regulatory arbitrage over time.

If a court starts from the FCC’s zero-price, no-cost-recovery premise, the FCC’s case is in immediate and serious legal jeopardy.

There are literally eighty years of settled Title II AT&T and Bell legal precedents that make clear that the FCC does not have the authority to permanently compel service with no opportunity for cost recovery or just compensation.

Apparently this FCC imagines that Title II’s “just and reasonable” standard is only based on what is just and reasonable for consumers, and not also for the regulated provider of service which has an obvious Constitutional Fifth Amendment right to “just compensation,” i.e. “nor shall private property be taken for public use, without just compensation.”

The FCC is making a huge wrong assumption that the FCC can compel a common carrier to do most anything – and not have to worry about its economic effect. That’s because they apparently have forgotten that when the FCC long compelled AT&T to do various common carrier obligations for the first fifty years of the 1934 Communications Act, that AT&T was guaranteed a utility, reasonable rate-of-return to sustain all its operations, investments, and profit.

Apparently this FCC imagines that in a competitive market where market forces and costs determine prices, and ultimately financial solvency, that compelling a competitive provider (which has no FCC guaranteed rate of return) to permanently provide a costly infrastructure service for free to edge providers which generate enormous amounts of fast-growing, cost-causing, downstream traffic, with no cost recovery, is somehow economically or competitively rational, and is not confiscatory.

Obviously no one at the FCC has thought through that Title II was designed as a holistic, end-to-end, utility-regulatory regime, that had widespread regulatory power to compel AT&T to do things precisely because it was a sanctioned closed, monopoly end-to-end service, that was always made whole with a guaranteed rate of return for its business and shareholders.

Even after the break-up of AT&T into local Baby Bells and a long distance network, Title II regulations devised an elaborate series of utility access charges and subsidies to ensure the companies recovered their costs and earned a guaranteed utility rate of return from 1984-1996.

Simply, the FCC is mistaken that it can impose Title II economic regulation without regard to economics or the Constitution.  

Furthermore, the FCC’s legal assertion that a combination of Title II and Section 706 authority combined can legally compel an entity to do something that neither Title II nor Section 706 can do legally individually is a desperate attempt at legal alchemy.  

 

IV.  What are the FCC’s Title II serial ends-justify-the-means violations of due process?    

Normally an administrative agency depends on some Chevron Deference from the courts in one or maybe two critical parts of their case. This FCC Title II case is so serially and sweepingly dependent on the court giving the FCC substantial deference that it’s tantamount to an expectation of FCC de facto due process immunity to disregard the law, facts, definitions, precedents, fair notice, reliance interests and proportionality.

Simply, the FCC is repeatedly declaring effectively: trust us, because our goal is more important than due process.

Re-defining the PSTN -- The FCC’s order claims the authority and latitude to “modernize” (redefine) the legally-settled definition of the Public Switched Telephone Network PSTN by adding “IP addresses” to its defining characteristics. To achieve the FCC’s self-serving legal goal of treating ISPs as “common carriers,” the FCC has to change the definition of the PSTN to add “IP addresses” because a provider is only a “common carrier” by definition, if it is connected to the PSTN.

This may be the most surprising and perplexing sub-decision in the order because just like the 1996 Telecommunications Act created mutually-exclusive definitions for telecommunications and information services, the PSTN and the Internet have been essentially mutually-exclusive embodiments of those mutually-exclusive definitions.

This is not a mere reinterpretation of ambiguous law, this is tantamount to legislation because it would have sweeping un-discussed implications for most everything PSTN and Internet. For example, the FCC currently is in the process of a complex IP transition proceeding.

This radical, scrambling redefinition of the PSTN, which was never put out for comment, arguably reincarnates the Internet to be a sub-part of the PSTN rather than the PSTN obsolescing and being replaced by the Internet. And all of this is done for the FCC’s regulatory convenience without any involvement of Congress, which by the way established a completely different Internet policy in law, which is diametrically opposed to this latest fantastical FCC reinterpretation of law.     

Reclassification -- The FCC assumes Title II broadband reclassification can be a singular, one-size-fits-all, all-at once decision, when the FCC seeks to undo multiple precedents which resolved very different factual predicates, technologically, historically, competitively and legally. The FCC gave no explanation why they could undo multiple precedents in the same way without addressing why the law and FCC originally addressed them differently, with different facts, at different times in different situations.

Forbearance – Like reclassification, the FCC assumes forbearance under Section 10 can be a singular, one-size-fits-all, all-at-once decision, with no detailed fact finding of competition, market power, or effect on the public interest, when every other exercise of Section 10 authority did. Title II is a holistic end-to-end interdependent regulatory regime. The FCC has effectively asserted in the FCC order that the FCC’s self interest and convenience and the public interest are one in the same. They are not.

Moreover, the FCC did not adequately explain how it can simultaneously hold factually contradictory conclusions at the same time – i.e. that there is insufficient competition to warrant Title II reclassification regulation, but sufficient competition to warrant unprecedented sweeping forbearance and deregulation. 

The FCC also never justifies why Section 10 and Section 706, which were provisions designed by Congress to de-regulate, are being employed to impose a huge net-increase in regulation.

Re-defining “Telecommunications” & “Information Services” – This FCC order in effect is asserting everything that previous FCCs decided in detailed proceedings – e.g. findings of fact and interpretation of precedent/law, in several bipartisan FCC precedents (1998, 1999, 2002, 2004,  2005, and 2007) since the 1996 Telecommunications Act – are all wrong and this partisan FCC is  completely right.

Simply, the FCC is asserting that these bearing point definitions, on which the entire free and open Internet ecosystem rests, are not legally-settled, fact-based, precedent-bound, statutory definitions in law, but essentially the “expert” fungible opinion of three FCC commissioners that can “change their mind” at any given time without much APA notice.

The FCC is now claiming that telecommunications can be information services and information services can be telecommunications -- whenever three FCC commissioner’s votes say so going forward.  This is quintessentially an arbitrary and capricious assertion of authority.

FCC Ignoring fair proportionality – At core, the FCC is asserting that a handful of alleged free and open Internet violations by a few of the ~2,000 American ISPs, that by the way were all successfully resolved or mitigated without FCC Title II regulatory authority, are such a dire potential threat to the public interest, that all ISPs, including the ~2,000 that have never been alleged to have done anything wrong, all deserve prophylactic 1934 monopoly utility regulatory internment to protect the public.

Not only is the FCC finding all ISPs guilty until proven innocent, it is sentencing ISPs to life in Title II regulatory prison for what the FCC alleges they might do wrong in the future. This is a politically gross abuse of due process, fairness, and the constitutional principle of proportional justice.

FCC Dismisses Huge Reliance Interests – The FCC’s effective cavalier summary dismissal of massively large, potentially ~trillion-dollar-size, ecosystem-wide, economic reliance interests is grossly unfair, arbitrary and capricious as well. In relying on precedent that the FCC can change its mind and reverse a previous decision, the FCC is interpreting that necessary appropriate discretion, practically is carte blanche to do whatever it wants to whomever it wants.

Simply, FCC discretion to change its mind is not authority to change facts, due process or the law.  

 

V.  Conclusion

The extent to which the courts focus on the FCC’s effort to ban “paid prioritization” -- the practical and driving purpose of the FCC’s Title II reclassification of broadband – the FCC’s Title II case is in serious legal jeopardy. That’s because the FCC ban on paid prioritization requires compelling a permanent zero-price on edge Internet downstream traffic with no cost recovery, which is obviously confiscatory and hence illegal.

Neither Title II nor Section 706 authority, separately or together, trump ISP’s Constitutional Fifth Amendment right to “just compensation,” i.e. “nor shall private property be taken for public use, without just compensation.”

The extent to which the courts care about protecting due process, the FCC’s Title II case is also in serious jeopardy. That’s because the FCC’s Title II legal case is built upon de facto claims of legal immunity to disregard due process, the law, facts, definitions, precedents, fair notice, reliance interests and proportionality.

Simply the FCC seeks an illegal end via multiple illegal means, and serial sweeping “Chevron Deference” to evade legal and constitutional accountability.

Multiple wrongs do not make a right.       

For the FCC to prevail, it needs the courts to politically rubber stamp the FCC’s unquestioned and unlimited assumption of “Chevron Deference,” not only for interpreting ambiguous law, but for their ends-justify-the-means take on most every building block of the FCC’s legal case.    

I don’t profess to know which violation(s) of due process the court(s) could seize upon, but at least one and possibly many could seriously offend any fair court. Importantly, a court only has to take issue with one of the FCC’s many violations of due process here for the FCC to lose.  

In short, expect the FCC’s new Open Internet Order’s assertion of Title II authority ultimately to be rejected in court (90%), because of its core illegal confiscatory purpose and its serial ends-justify-the-means trampling of due process. 

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Click here to read Part I of my legal analysis of the FCC Open Internet Order – “A Legal House of Cards

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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? Op-ed Rebutting Marvin Ammori's [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 42: Net Neutrality is about Consumer Benefit not Corporate Welfare for Netflix [3-21-14]

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 Broadband Utility Regulation Risks [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? [11-7-14]

Part 72: The Top Ten Adjectives to Describe Net Neutrality [11-11-14]

Part 73: Top Ten Questions to Ask About Title II Regulation of the Internet [11-20-14]

Part 74: The Only Legitimate FCC Hybrid Net Neutrality Approach [12-1-14]

Part 75: Who Pays for Net Neutrality? [12-3-14]

Part 76: Top Ten Deficiencies in FCC’s Title II Record [12-8-14]

Part 77: FCC Title II Internet Regulation: “Believe it or not!” [12-17-14]

Part 78: The FCC Is Unnecessarily Undermining its Legitimacy [12-18-14]

Part 79: NetCompetition Statement on New FCC Net Neutrality Legislation [1-16-15]

Part 80: Need for Modernizing Communications Law – Seeing the Forest for the Trees [1-18-15]

Part 81: Why the FCC Needs Congress [1-20-15]

Part 82: NetCompetition on FCC Publicly Sharing its Proposed Open Internet Order [1-23-15]

Part 83: The FCC’s De-Americanization of the Internet [1-25-15]

Part 84: Testing the FCC’s Net Neutrality Calculus [1-28-15]

Part 85: Net Neutrality Bait & Switch to Title II [2-3-15]

Part 86: FCC Internet Utility Regulation Is a Really Stupid Idea [2-9-15]

Part 87: The FCC Is Not Neutral [2-17-15]

Part 88: Title II Protectionism Will Hurt Google & Silicon Valley in EU [2-19-15]

Part 89: The FCC’s Predictable Fiasco of Internet Utility Regulation [2-24-15]

Part 90: Why FCC Will Lose in Court on Title II Internet (80%) – A Legal House of Cards [3-2-15]

Part 91: FCC Title II Protectionism Creates a U.S. Digital Single Market like EU’s [3-11-15]

Part 92: NetCompetition on FCC Title II Internet Order [3-12-15]

 

Q&A One Pager Debunking Net Neutrality Myths