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IRIS 2010-6:1/43

United States

Court Invalidates FCC Internet Jurisdiction

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Christopher G. Dorman

Phillips Lytle LLP & Media Center, New York Law School

In Comcast Corporation v. Federal Communications Commission (D.C. Cir., 6 April 2010), the District of Columbia Circuit Court found that the FCC did not have the legal authority to regulate an Internet service provider’s (ISP’s) network management practices. Many observers view the decision as a setback for “net neutrality,” the principle that users should have open access to Internet content without carrier interference. Others view it as the demise of the National Broadband Plan, which the Federal Communications Commission (FCC) had issued on 16 March 2010. Despite the politically-charged nature of the issue, the court’s decision was narrowly based on the absence of adequate statutory basis for FCC jurisdiction over the Internet.

The underlying dispute arose when subscribers to Comcast Corporation’s (Comcast’s) high speed Internet service discovered that Comcast was slowing particular service providers’ peer-to-peer networking traffic and filed a complaint with the FCC. The subscribers argued that Comcast violated the Commission’s policy that “consumers are entitled to access the lawful Internet content of their choice . . . [and] to run applications and use services of their choice.” Comcast defended its action as necessary to manage network capacity, as peer-to-peer networking consumed a significant amount of bandwidth.

The FCC agreed that Comcast’s action ran afoul of its policy, noting that Comcast had other options to manage network traffic. Since Comcast already had agreed to adopt alternative methods for managing its network, the FCC ordered Comcast (“Order”) to disclose implementation of its new approach, but advised that it was prepared to issue an injunction if Comcast failed to keep its promises.

In challenging the Order, Comcast argued that the FCC had: (i) failed to justify exercising jurisdiction over its network management practices, (ii) circumvented the rule-making requirements of the Administrative Procedure Act (Act) as well as violated the Due Process Clause, and (iii) acted in an arbitrary and capricious manner in its reasoning for the Order. The first point was decisive in favor of Comcast’s position.

Acknowledging that it had no express authority to regulate such activity, the FCC asserted that its authority derived from Title I of the Act, which provides, in section 154(i), that “the [FCC] may perform any and all acts, make such rules and regulations, and issue such orders, that are not inconsistent with the Act, as may be necessary in the execution of its functions”. This invoked the Commission’s “reasonably ancillary authority” to regulate, as articulated in the United States Supreme Court’s decisions in United States v. Southwestern Cable Co. 392 U.S. 157 (1968), United States v. Midwest Video Corp., 406 U.S. 649 (1972), and FCC v. Midwest Video Corp., 440 U.S. 689 (1979)—all decided in the context of recognizing FCC jurisdiction over the then new cable television medium.

Citing its own decision in Am. Library Ass’n v. FCC., 406 F.3d 689 (D.C. Cir. 2005) wherein the court summarized the holdings of these cases, the court stated that the FCC could exercise ancillary authority provided: (1) the FCC’s general jurisdictional grant under Title I of the Act covers the regulated subject, and (2) the regulations are reasonably ancillary to the FCC’s effective performance of its statutorily mandated responsibility.

But the court concluded that the FCC had failed to satisfy the second part of the test. Analyzing a line of cases considering “ancillary authority” the court found that such authority must have a statutory basis in the Communications Act—such as the Commission’s jurisdiction over broadcasting in Southwestern. Here the court found, however, that the Commission had relied only on Congressional policy. Policy statements may “illuminate” the authority of administrative agencies, but the authority must ultimately derive from the statute. Without reference to substantive regulatory provisions of the Communications Act, the FCC’s ancillary jurisdiction could be unbounded.

The FCC also argued that several other provisions of the Act, including parts of Title II, gave the FCC ancillary jurisdiction over Comcast, but the court disagreed with the FCC's analysis of these provisions.

The court concluded that "while Congress gave the FCC broad and adaptable jurisdiction to keep pace with rapidly evolving communications technology - the Internet being just such a technology - arguably the most important innovation in communications in a generation - the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities of which the statute fails to confer FCC authority.”

The FCC may look for other existing statutory bases—such as its longstanding jurisdiction over common carriers under Title II of the Act--or encourage the Obama Administration to introduce legislation giving the Commission Internet jurisdiction. Given the state of affairs in Washington today, however, enacting such legislation will likely prove to be a long and perhaps uphill battle.

Comcast Corporation v. Federal Communications Commission (D.C. Cir., 6 April 2010) EN