DC Circuit Rules Against Net Neutrality

Yesterday, the US Court of Appeals for the DC Circuit ruled on Verizon v. Federal Communications Commission (FCC).  This case deals with FCC order In re Preserving the Open Internet (25 F.C.C.R. 17905 (2010)), referred to as the Open Internet Order in the opinion.  The Open Internet Order (“Order”, found here: https://www.fcc.gov/document/preserving-open-internet) imposed what the media commonly refers to as “net neutrality” on broadband Internet Service Providers (ISPs).  The Order required these ISPs banned various discriminatory practices in terms of network allocation, as well as imposed various anti-blocking and disclosure requirements.  The idea is to prevent the ISPs from prioritizing internet traffic from certain sources. The major ISPs (such as Verizon, Comcast, and Time Warner Cable) challenged the Order in court.

The DC Circuit’s ruling (http://www.cadc.uscourts.gov/internet/opinions.nsf/3AF8B4D938CDEEA685257C6000532062/$file/11-1355-1474943.pdf) came down to a very complicated piece of analysis: whether broadband ISPs qualify as a “common carrier.”  A common carrier is a legal term of art for certain providers of public infrastructure (with the case giving the examples of ferrymen and innkeepers as the inspiration for the concept).  These carriers have certain special obligations imposed on them, one of which is to provide their services to anyone requesting them and to charge a reasonable rate in doing so.  The Communications Act of 1936 (which created the FCC) imposes this status on telecommunications companies.  The Communications Act also provides an incredibly unhelpful definition of a common carrier (“any person engaged as a common carrier for hire” per 47 U.S.C. §153(11)).  National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630, 642(D.C. Cir. 1976) provides the legal reasoning for how the DC Circuit determines who is a common carrier and who is not: whether the company can make individualized decisions on the terms of a deal.

The court’s decision hinges on whether broadband internet qualifies as such a common carrier service.  One of the issues that the ruling points out is that the FCC made an initial ruling that broadband internet is not a common carrier service.  The DC Circuit could then strike the Order down if they found that it imposed common carrier obligations on the ISPs.  From a pure legal reasoning standpoint, the DC Circuit is correct.  The FCC tried to make an argument that requiring the ISPs to not discriminate between edge providers on their network (removing the individualized nature of the edge provider’s relationship with the ISP) while saying that these weren’t common carrier regulations.  That argument definitely misses the mark.  The FCC probably wanted to avoid a fight over all the other regulatory requirements that common carrier status entails.  Fortunately, the DC Circuit opted to remand the matter back to the FCC.  The FCC can read the ruling, and attempt to modify their crafting of net neutrality rules accordingly.

The ruling completely ignores why the major ISPs opted to challenge the Order in the first place.  As Bloomberg notes (http://www.bloomberg.com/news/2014-01-14/verizon-victory-on-net-neutrality-rules-seen-as-loss-for-netflix.html), the ISPs have floated any number of plans to profit off of tiered access plans.  Many of these plans revolve around the idea of charging for faster access to the ISP’s network.  There are a number of criticisms for these plans: they’ll increase the cost of using web-based services for customers, they’ll provide preferential treatment to established companies, and so on.  There is, however, an additional worry.  A number of these ISPs operate their own streaming services.  Verizon, for example, owns Redbox’s streaming service.  Comcast runs their own service called XFinity Streampix.  These services create a conflict of interest for the ISPs, since they could provide preferential treatment to their own streaming services.  The ISPs have already attempted such actions in the past, such as when Comcast opted not to count XFinity Live video on XBox Live against their data cap (http://www.gamepolitics.com/2012/03/27/comcast-defends-xfinity-xbox-live-against-net-neutrality-concerns).  What makes the decision to ignore the policy reasons for the Order even stranger is that the Court addresses these concerns early in the ruling, particularly during the section dealing with the FCC’s regulatory authority.

Now we move to the million dollar question: will the FCC alter its net neutrality rules and, if so, in what manner?  The court definitely left a regulatory path open to the FCC, in the form of stating that common carrier status applies to how ISPs act towards edge providers.  I should be interesting to see how the matter progresses from here.

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