D.C. Circuit Overturns FCC's Net Neutrality Enforcement Against Comcast

April 06, 2010

The D.C. Circuit’s ruling today in Comcast v. FCC, vacates the FCC’s 2008 Order declaring unlawful Comcast’s practice of degrading peer-to-peer network traffic (such as Bit Torrent). The Court held that the FCC failed to justify its assertion of authority over Comcast’s cable modem services. The decision complicates the FCC’s ongoing Net Neutrality rulemaking and may lead to more serious considerations of re-classifying broadband services under Title II of the Act.

In 2008, the FCC issued an order requiring Comcast to cease blocking or degrading peer-to-peer file sharing by subscribers to broadband cable-modem service. The FCC found that Comcast’s practices violated the FCC’s 2005 Internet Policy but did not impose any fine. The FCC declared that it could enforce its policy statement even in the absence of any codified rules and also found that it had the statutory authority under the Act to regulate Comcast’s provision of cable modem broadband Internet service. In asserting jurisdiction the FCC relied on a hodgepodge of statutory provisions including § 4(i) (its general grant of jurisdiction), § 230 (Congressional policy of keeping Internet free from regulation), § 706 (encouraging deployment of broadband), and Title VI which governs the provision of cable service. The FCC further found that its authority to regulate cable modem broadband Internet was recognized by the Supreme Court in its Brand X ruling upholding the agency’s Title I classification.

In its appeal, Comcast argued that the FCC could not enforce the policy statement because there was no federal law but only “policy” and Commission action must be predicated on a statute, rule, or decision, not just a “policy statement.” Further, Comcast argued that the FCC’s jurisdiction is limited to the authority expressly conferred by Congress and authority that is “reasonably ancillary” to the duties imposed by Congress in substantive mandates of the Act, and that the FCC’s order was arbitrary and capricious. At oral argument, while Comcast urged the Court to rule on the grounds that the FCC could not enforce its 2005 policy statement, the bulk of the questions from the bench addressed Comcast’s statutory challenge. As these questions signaled, the Court’s opinion is based solely on the statutory argument and does not address the merits of Comcast’s other challenges to the Order.

In addition to its statutorily mandated regulatory powers over common carriers (Title II) Radio and Broadcasting (Title III) and Cable (Title VI) under section 4(i) (47 USC § 154) the FCC has power 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 function.” The Court’s opinion addresses three main issues all relating to whether the Commission properly exercised this “ancillary” authority.

First, the Court rejected the FCC’s claim that the Supreme Court’s statement in Brand X that “the Commission remains free to impose special regulatory duties on [cable internet providers] under its Title I ancillary jurisdiction,” means the FCC has plenary authority over cable modem services. Relying on Supreme Court and Circuit precedent (Southwestern Cable, Midwestern Video I and Midwestern Video II) the Court held that “the [FCC’s] exercise of ancillary authority over Comcast’s network management practices must … be independently justified.”

Second, the Court rejected the FCC’s claim that policy statements in the Act (such as § 1 and § 230) can provide  a basis for ancillary jurisdiction in the absence of a substantive regulatory mandate. The Court found that Southwestern Cable, Midwestern Video I and Midwestern Video II require that any assertion of ancillary authority be tethered to substantive power conferred on the FCC by Congress such as those in Titles II, II and VI of the Act.

Third, the Court rejected the FCC’s claim that its asserted authority over Comcast’s network management practices was sufficiently related to provisions in Titles II, III and VI. The Court rejected the FCC’s claims as follows: § 706 (FCC bound by its own earlier decision stating that § 706 grants no regulatory authority); § 256 (statutory text bars uses of section to expand FCC authority); § 257 (no plausible linkage between FCC regulation of Comcast network practices and FCC’s obligation to issue report to Congress; § 201 (FCC forfeited by failing to argue in its brief); Title III (no source for this argument in the Order); § 623 (FCC did not invoke § 623 in Order; section provides FCC with only limited authority over basic tier cable rates, and expressly excludes regulation of video on demand rates).

The D.C. Circuit opinion here will certainly have an impact on the FCC’s Net Neutrality rulemaking. The FCC now has several approaches available to it — it could appeal this decision to the Supreme Court, or ask Congress to amend the statute to give it explicit authority over Internet access services, although either of these courses would involve substantial risk and delay; it may begin to build a more robust record tying its proposed Net Neutrality rules to the exercise of the FCC’s substantive responsibilities in Title II (Common Carriage), Title III (broadcasting) and Title VI (cable television); or it can pursue the re-classification of broadband as a Title II service, although this approach also would likely face further court challenges.

If you have questions regarding this matter or would like to further discuss these issues, please contact the following lawyers in our Telecommunications, Media & Technology Group:

Andrew D. Lipman, Partner, 202.373.6033

Russell M. Blau, Partner, 202.373.6035

This article was originally published by Bingham McCutchen LLP.