When the DC Circuit Court finally released its Opinion this week on the appeals of the FCC’s Restoring Internet Freedom Order, Chairman Pai along with the large ISPs quickly claimed victory. They know better. While two of the three judges grudgingly agreed that the Commission has the right to classify broadband Internet access service (BIAS) as an information service, they immediately made that classification and its regulatory requirements nearly impossible to enforce by vacating the FCC’s ability to preempt state laws that reinstate net neutrality rules. This would force the Commission to contest individual state laws on a case-by-case basis, creating more years of uncertainty and litigation. The agency could appeal the preemption decision to the full DC Circuit, or more likely take its case directly to the Supreme Court, while seeking a stay of the preemption decision while the appeal is heard.

Here are the Court’s main conclusions, which are based on the Chevron Doctrine which requires a court to defer to an agency’s interpretation of an ambiguous statute if that interpretation is reasonable.

First, the Court found that the 2002 Supreme Court “Brand X” opinion, which supported the FCC’s decision to classify cable broadband as a Title I information service holds today, with the Commission free to classify BIAS any way it chooses if its explanation is reasonable.

[W]e hold that classifying broadband Internet access as an “information service” based on the functionalities of DNS [Domain Name Service] and caching is “‘a reasonable policy choice for the [Commission] to make’ at Chevron’s second step.” As we said in USTA, “Our job is to ensure that an agency has acted ‘within the limits of [Congress’s] delegation’ of authority,” and “we do not ‘inquire as to whether the agency’s decision is wise as a policy matter; indeed, we are forbidden from substituting our judgment for that of the agency,’” “[T]he [Brand X] Court made clear in its decision—over and over—that the Act left the [classification] to the agency’s discretion.” (DC Circuit Court of Appeals October 1, 2019 Opinion, Mozilla Corporation vs FCC, at p. 16, quoting 2002 Supreme Court decision).

Second, under the Chevron Doctrine the Court agreed that it was reasonable for the FCC to find mobile broadband as “private” service not subject to Title II common carrier regulation. This interpretation is reasonable to ensure the same regulations apply for both fixed and mobile broadband service.

In keeping with its classification of broadband Internet as an “information service” not subject to Title II, the Commission classified mobile broadband as a “private mobile service”—a classification that under the statute automatically exempted it from common carriage treatment—just as the sole alternative classification available under the statute would have automatically required common carriage treatment. We uphold this classification as reasonable under Chevron. As we said in USTA (and as the Title II Order and Petitioners recognize), the Commission has compelling policy grounds to ensure consistent treatment of the two varieties of broadband Internet access, fixed and mobile, subjecting both, or neither, to Title II. (Id., at p. 46.).

Next, the DC Circuit found that the FCC was legally sound in determining that it could replace the bright line net neutrality rules of no blocking, throttling or paid prioritization of Internet traffic with a combination of ISP transparency, competition and Federal Trade Commission antitrust and consumer protection regulations.

The Court decided that the Commission’s reliance on economic studies that found that Title II classification hurt investment was also a reasonable interpretation of the conflicting studies submitted by various parties in the proceeding.

The DC Circuit did remand certain parts of the FCC Order back to the agency for further explanations. These include the fact that (1) the Commission failed to explain the effects of its rules on public safety, (2) the information classification took broadband outside the statutory rules for pole attachments, and (3) the new classification removes broadband from its statutory inclusion in the Lifeline program. None on these issues forced the Court to vacate any section of the Order.

Finally, we come to the key issue of state preemption. The Court finds that because of the information service classification, the Commission has no direct authority over state actions affecting BIAS. Instead since BIAS is a Title I service, the Commission has only ancillary control.

The Commission’s ancillary authority derives from a provision within Title I of the Act that empowers the Commission to “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.” That provision enables the Commission to regulate on matters “reasonably ancillary to the * * * effective performance of its statutorily mandated responsibilities.” (Id., at p. 124).

According to the Court, however, ancillary authority does not apply here. Resulting in the FCC having no authority over the states on net neutrality.

Neither can the Commission house the Preemption Directive in its ancillary authority under Title I. “Title I is not an independent source of regulatory authority.” As a result, ancillary jurisdiction exists only when “(1) the Commission’s general jurisdictional grant under Title I of the Communications Act covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” Under binding circuit precedent, those “statutorily mandated responsibilities” must themselves be dictated by Title II, III, or VI of the Act—none of which apply since the Commission took broadband out of Title II. (Id., at p. 125).

But more than 20 states have already enacted their own broadband laws, all with the goal of restoring the net neutrality rules. This puts the FCC in the impossible position of establishing rules that cannot be enforced without individual court battles with each state law.
 

Not to put too much of a political spin on this, but the two judges that vacated FCC preemption power are Obama appointees. The third judge, a Reagan appointee, had a different view.
So says Macbeth, finding that the witches’ assurances were sheer artifice and that his life is collapsing around him. The enactors of the 2018 Order, though surely no Macbeths, might nonetheless feel a certain kinship, being told that they acted lawfully in rejecting the heavy hand of Title II for the Internet, but that each of the 50 states is free to impose just that. (Many have already enacted such legislation.) If Internet communications were tidily divided into federal markets and readily severable state markets, this might be no problem. But no modern user of the Internet can believe for a second in such tidy isolation; indeed, the Commission here made an uncontested finding that it would be “impossible” to maintain the regime it had adopted under Title I in the face of inconsistent state regulation. On my colleagues’ view, state policy trumps federal; or, more precisely, the most draconian state policy trumps all else. “The Commission may lawfully decide to free the Internet from Title II,” we say, “It just can’t give its decision any effect in the real world.” (Dissent of Senior Circuit Judge Stephen Williams).

Now that this Opinion has been released, it would clearly be best for Congress to compromise on net neutrality and settle it once and for all. Without Congressional intervention, we could be looking at a patchwork of 50 state net neutrality laws and the classification of broadband changing based on the whims of each new Commission. Thus, we believe the FCC should immediately seek an appeal of this Opinion at the Supreme Court and in the interim seek a stay of the preemption decision.