DC Circuit Considers Net Neutrality Rules

On Oct. 27, 2015, the stage was set for the much-scrutinized court hearing on FCC net neutrality rules and broadband reclassification under Title II of the Communications Act. That day, the U.S. Court of Appeals for the D.C. Circuit identified judges in the case as David Tatel and Sri Srinivasan, both Democratic appointees, and Senior Judge Stephen Williams, a Republican appointee. As Communications Daily first reported Oct. 28, Tatel was the most-watched judge in the case (see 1510280052). This Part III of our Special Report on net neutrality explores the hearing and continuing legal challenges. Part I was on the rules themselves (see 1609150017) and Part II on pleadings to the court that led up to Dec. 4, 2015, oral argument (see 1609230009). Part IV is on the court's eventual decision (see 1610210015).

Tatel was nominated by President Bill Clinton; Srinivasan, an ex-deputy solicitor general, was picked by Barack Obama; and Williams, by Ronald Reagan. Tatel wrote some key decisions on FCC rules, including Verizon, a 2014 ruling that overturned parts of the 2010 net neutrality order; Comcast, a 2010 decision saying the FCC doesn't have ancillary jurisdiction over the cable ISP's broadband internet service under Title I's information service classification; and Cellco Partnership, a 2012 case upholding FCC data roaming rules. Before Obama picked D.C. Circuit Judge Merrick Garland as his current Supreme Court nominee, some said the president might choose Srinivasan. The latter jurist, Pennsylvania Law School professor Christopher Yoo said of the judge he knows well, is a “lawyer’s lawyer” who argued many cases before appellate courts. Garland wasn't confirmed before Donald Trump was elected president Nov. 8, 2016.

Tatel has emerged as the court's “resident expert” on FCC internet policy, said Daniel Lyons, associate professor at Boston College Law School. The FCC strayed from the guidance in the earlier Verizon decision, he said.

Andrew Schwartzman, senior counselor at the Georgetown Law Institute for Public Representation, said Tatel is seen as a “genius” with tremendous recall. “The way I read the Verizon decision, [Tatel] thought the FCC was quite right in identifying a problem and solutions, and he upheld their reasoning that the rules made sense, but he clearly considered the rules were beyond the scope of the FCC’s powers under Title I," Schwartzman said.

Former FCC Chairman Reed Hundt, who filed a brief with others defending the order against a First Amendment challenge, said then-FCC General Counsel Jonathan Sallet “got what he wanted” in the makeup of judges. It “should be a fierce and fair fight,” Hundt said. Former Commissioner Harold Furchtgott-Roth, who joined a brief backing a challenge on speech grounds, said communications shouldn't be a partisan issue. Tatel’s opinion in Verizon gave the agency the opportunity to act as a referee in broadband disputes without reclassifying broadband, said Fred Campbell, then the executive director of the Center for Boundless Innovation in Technology, which backed petitioners.

Even the FCC chairman invoked Tatel, hours before the oral argument. Chairman Tom Wheeler took several shots at ISPs during his speech at the FCBA's annual chairman's dinner (see 1512040043). He joked that the “light of my life” and the “person who inspires me every day to get up” is Tatel. Wheeler called the Dec. 3, 2015, dinner the “pre-argument tailgate” for the telecom lawyers in the room. He referred to Uber surge pricing as likely that evening, and said NCTA CEO Michael Powell “blames it on Title II." That title was a running joke of Wheeler’s through the night. He singled out Comcast attendees within the first five minutes of a 38-minute speech. “If they want more wine, it’s $35 a bottle,” Wheeler declared. “And don’t consider it a wine cap. Just think of it as a wine usage plan.” Wheeler judged “hilarious” Verizon suing to overturn the old net neutrality order only to return and advocate for the very proposal when confronted later with the Title II possibility.

Hours-long Hearing

On Dec. 4, 2015, the three judges heard oral argument. They pressed lawyers for all sides. Jurists heavily questioned USTelecom arguments that the broadband reclassification under Title II violated the law, with Tatel suggesting the Supreme Court's 2005 Brand X decision gave the agency's broadband classification decisions much deference. Judges also pushed FCC attorneys hard to defend reasons for reclassifying, extending Title II to mobile broadband and IP interconnection but not edge traffic, and banning paid prioritization. The complicated oral argument was scheduled for two hours but ran three hours. A two-part audio recording is available here.

Afterward, both critics and supporters saw reasons to be hopeful. AT&T is “very pleased with today’s oral arguments,” said Bob Quinn, now senior executive vice president. He said judges “focused on all the right issues.” Senior Vice President Harold Feld of Public Knowledge told reporters, “I’m pretty happy, actually.” He believed reclassification was on “pretty solid” ground on wireline broadband, though it faced “mixed” prospects on the mobile wireless side and the FCC “may lose” on IP interconnection, possibly on procedural notice grounds.

Tatel repeatedly cited Brand X in pushing back against petitioner arguments that reclassification was illegal. Peter Keisler, representing USTelecom and other telco and cable petitioners, said the FCC went further by deeming broadband internet access service (BIAS) as falling under Title II, which included computer processing functions that he said were clearly Title I information services.

Srinivasan and Williams asked about a telecom management exception to information services. Srinivasan suggested that, even in the day of the traditional Title II phone system, there were information processing elements. Keisler said web access was considered a Title I information service. He said the domain name system (DNS) and caching were considered information-like services. Tatel said caching seems like a telecom service that transmits information without changing it. The FCC's Sallet said the telecom management exception covered both DNS and caching. Sallet has since left for DOJ (see 1607190061).

Tatel kept bringing the early discussion back to Brand X and pressed Keisler about petitioner arguments that that earlier case was about only “last-mile” broadband service. Keisler said the “last mile” was the broadband pipe from the customer up to the point of the ISP’s computer facilities but BIAS extends further. Tatel suggested that even if Keisler were right, the question is what service consumers were being “offered,” and “that’s ambiguous,” which the FCC can interpret as long as it’s “reasonable.”

Tatel pressed Sallet hard to justify the FCC shift to Title II. He said that came after initially seeming to pursue broadband regulation under Telecom Act Section 706 authority, which Tatel’s 2014 Verizon ruling upheld as long as, absent Title II, it didn’t include common-carrier regulation. Sallet struggled to answer. Tatel fell quiet after Sallet said the FCC concluded it couldn’t do all bright-line net neutrality rules -- against blocking, throttling and paid prioritization -- without Title II.

There was much discussion about asserting Title II jurisdiction over IP interconnection but not ISP service to internet edge providers. Keisler said petitioner arguments that they weren't given due notice of FCC intentions under the Administrative Procedure Act were particularly strong on interconnection after Wheeler originally said interconnection should be dealt with separately from net neutrality. Keisler said the agency backed off applying Title II to ISP service to edge providers after a Google filing late in the rulemaking. All three judges questioned Sallet extensively over the decision not to reclassify the ISP edge service. Williams also pressed Sallet hard to justify its paid prioritization ban, which Sallet said the commission reasonably concluded was needed to encourage a “virtuous circle” of broadband provider and edge innovation and investment.

Under questioning from Tatel, Keisler allowed that the commission had “some latitude” to reclassify wireless broadband. That prompted Tatel to interject, “the FCC has more than some.” After that, Keisler got less pushback from judges to arguments the FCC violated the law on mobile broadband, including by not providing petitioners with enough APA notice. Tatel suggested to Keisler and FCC attorney Jacob Lewis that the court may agree with petitioners on the lack of notice, though he questioned whether they had suffered any actual harm. Keisler said they had. There was also much debate over whether statutory text on the “public switched network” could be equated with the “public switched telephone network.” The FCC said it couldn't.

The court heard Alamo Broadband arguments that the order violated the First Amendment on free-speech grounds, and Full Service Network arguments against forbearance giving ISPs relief from much telecom regulation. Alamo attorney Brett Shumate said ISPs are speakers whose speech rights cannot be taken away by regulation, but Lewis said ISPs engage in "transportation, not editorial discretion." FSN lawyer Earl Comstock said the FCC couldn't simply forbear from applying major competitive sections of the Telecom Act, or at least not without greater justification. Judges asked many questions on both issues.

Insider Expectations

The sides had different takes on how the argument (see 1512040058) went, in later interviews (see 1512070054). FCC supporters believed Tatel’s focus on Brand X ruling and the discretion it gave the FCC boded well for reclassification. Even one critic suspected Title II reclassification of wireline ISPs could be upheld. All noted reclassification of mobile broadband was at risk. And they noted predicting court rulings is inexact.

“We’re looking at 2-1” in favor of the FCC, said Georgetown's Schwartzman. Critics disagreed. The agency can’t take significant legal “hits” and “get what they want,” said challenger/VoIP pioneer Daniel Berninger. “You could argue that they’ll win on two things and we’ll win on two, but they need to win on everything.”

Ex-Commissioner Robert McDowell and NetCompetition Chairman Scott Cleland believed the FCC was at significant risk of being overturned on reclassification generally. They noted Tatel pressed Sallet to explain why the agency had shifted to Title II, and Cleland also blogged about it. Wells Fargo analysts said their sense was “Title II is no sure thing (a positive for cable), given the judges’ apparent skepticism of the FCC’s decision to reclassify mobile broadband & ban paid prioritization, coupled with the apparent lack of appropriate notice.” Doug Brake, telecom analyst at the Information Technology and Innovation Foundation, called the argument a “wake-up call” on the need for a legislative solution. “While the judges seemed ready to give the commission discretion on the main aspects of wired reclassification, there are a couple of cards that, if knocked on, could bring the house down,” he said.

Kevin Russell, who argued for intervenors supporting the FCC, said his side took "great hope" from Tatel’s early suggestions that “Brand X is the starting point.” New America’s Open Technology Institute is "confident in the strength of the rules and are encouraged by the court’s responsiveness to the legal arguments made by the FCC and its intervenors,” said Sarah Morris, OTI senior policy counsel.

Rather than a definitive victory or defeat, the D.C. Circuit was likely to deliver "a hodgepodge of wins and losses," Powell said in a December 2015 interview for C-SPAN's The Communicators (see 1512100050). "That will create a sort of Swiss cheese of a regime, which is part of what I've been concerned about all along. It will leave more confusion and complexity than it will stability and finality."

Powell said when he led the commission, it was focused on the same open internet principles, deliberately not regulating broadband instead of "replicat[ing] the Ma Bell 100-year-old common carrier regime." Powell was critical of common-carriage approaches, arguing that leads to large barriers for new entrants: “Incumbents have a long history of learning how to master large complex regulatory regimes to their advantage. I won't be surprised if the same thing happens again." Powell also said "a lot of lazy thinking" has begun to equate common carriage or utility regulation with "saying something is important or indispensable."

Pantelis Michalopoulos, a Steptoe & Johnson attorney who at oral argument represented intervenors backing the FCC, took issue with predictions that the commission likely would lose on its mobile broadband reclassification and some other decisions. It's “dangerous and somewhat simplistic to jump to predictions” that the D.C. Circuit will issue a “Solomonic baby-splitting” ruling, he said, suggesting the court would try to harmonize the policy conflicts under the law. He rejected arguments the FCC needs to win on everything or its whole framework will fall apart. Some issues are more important than others, and “it’s better to win on the important issues than the less-important ones,” he said. “It is impossible to predict what the court will do,” he added. “We ought to give ourselves the luxury of some suspense.”

Delayed Ruling

As spring turned to summer, parties to the case and the many watching it closely were wondering: Where is the D.C. Circuit ruling? This prompted numerous news and other reports, including from Communications Daily (such as 1606100050).

The delay provided few hints about the outcome, those on both sides told us in June. Several said jurists probably were struggling to reconcile the complexities and some said the panel likely was split. Most didn't read much into the six-plus months that had passed since Dec. 4, 2015, oral argument. Lawmakers told us they weren't much concerned, either (see 1606090064).

“I can make arguments either way that the delay is good or bad," said PK's Feld. "There's nothing to do but grit your teeth and wait. That's what's driving everybody crazy.”

A critic of the commission order offered a similar assessment. “It’s easy to conjure up all variety of theories concerning why the court’s decision hasn’t been forthcoming, and usually the 'conjuring up’ is consistent with one’s own predilections," emailed Free State Foundation President Randolph May. "No one really knows. If I were to speculate, I suspect the delay, if we want to call it that, reflects the fact that this is a complicated, important case, with a likely split decision on certain points leading to some back-and-forth sparring and perhaps even reevaluations in drafting separate opinions.” One FCC official predicted judges were split.

“The delay tells me nothing," emailed Georgetown's Schwartzman. "The period since oral argument is rather long, but hardly unprecedented. Sometimes a six-month delay can prompt speculation that the decision may be lengthy and that there is a strong likelihood of a dissent. However, in this case, it was reasonable to have guessed that on the day of oral argument.”

“The waiting is really, really a crippling distraction," emailed TechFreedom President Berin Szoka. "Many of our other policy issues are tied up in the decision, most notably the FCC's privacy rulemaking. The FCC could have waited to issue that till the decision was out but, of course, didn't. I still think the court will take as much time as possible to finish the decision mainly because, if there's a dissent, there will be a lot of back and forth.” Commissioners voted Oct. 27, 2016, on ISP privacy rules (see 1610270036).

Feld posted on Facebook about the wait: "DEAR D.C. Cir.: Please drop the #‎netneutrality decision AND GIVE ME MY LIFE BACK!!!! I can't take another Tuesday/Friday of this!!! 'No, I can't schedule emergency surgery to have my appendix out, I need to be ready if the D.C. Cir., drops the net neutrality opinion.' 'What Mr. President, meet on Tuesday morning? O.K., but I may have to leave at 10 a.m. if the net neutrality decision drops.' AAAAAAAAARRRRRGGGGHHHHHHH!!!!!!!!!" D.C. Circuit decisions are issued at around that time on Tuesdays and Fridays.

The FCC had to make a “triple bank shot” to win the litigation, said AT&T CEO Randall Stephenson in February 2015. Although judges might side with the commission on “last-mile” broadband, they seemed deeply skeptical of its wireless and interconnection decisions, and if “any one of those fail, then this whole order” will “probably” not be sustained, he said on CNBC (see here, here, here). Stephenson's view "reflects a basic consensus on the big issues in the case," Potomac Research Group analyst Paul Glenchur told us.

In June, the court rendered its decision (see 1606140023).