Yesterday, the United States Court of Appeals for the District of Columbia Circuit vacated the FCC’s August, 2008 decision holding that Comcast had violated the FCC’s 2005 Internet Policy Statement by blocking customer access to BitTorrent, a file-sharing service. In a unanimous decision, the three-judge panel concluded that the FCC “failed to tie its assertion of ancillary authority over Comcast’s Internet service to any ‘statutorily mandated responsibility.’” The court found that the FCC “was not delegated unrestrained authority” under the Communications Act and that the FCC had not established that Congress granted it authority to enforce its 2005 Internet Policy Statement or to regulate Internet service providers’ (“ISPs”) network management practices. The court’s decision may force the FCC to attempt to reclassify Internet service as a common carrier service under Title II of the Communications Act or to search for alternative new legal justifications for its efforts to regulate ISPs services. The court’s ruling also casts doubt on the future of the FCC’s open Internet proceeding and major components of the recently released National Broadband Plan that Chairman Julius Genachowski has made the centerpiece of his agenda. The text of the decision is available from the court’s web site at http://pacer.cadc.uscourts.gov/ common/opinions/201004/08-1291-1238302.pdf.

OVERVIEW

The FCC’s 2005 Internet Policy Statement contained a series of operating principles for Internet service providers which stated in part that “consumers are entitled to access the lawful Internet content of their choice . . . [and] to run applications and use services of their choice.” After receiving consumer complaints in 2007 about Comcast’s Internet service and subsequently conducting a lengthy investigation, the FCC issued a decision concluding that Comcast violated the FCC’s 2005 Internet Policy Statement when it implemented certain traffic management protocols that were intended by Comcast to facilitate the efficient use of network capacity. The protocols in question also blocked subscribers’ use of certain peer-to-peer video applications, such as BitTorrent, that are used widely throughout the Internet to distribute large data files, including pirated movies.

Among other arguments, Comcast questioned from the outset whether the FCC had the authority enforce its 2005 Internet Policy Statement because there is no specific provision in the Communications Act that covers Internet discrimination issues. The FCC determined that it did have “ancillary authority” to regulate Comcast’s network management practices based on a grab bag of statutory provisions and court decisions, none of which directly addressed the question.

Although Comcast appealed the adverse FCC decision on several different grounds, the court ruled only on the jurisdictional issues. The court’s detailed review of the jurisdictional issues constitutes one of the most complete analyses of a federal administrative agency’s power under its “ancillary” jurisdiction in the last twenty years and will undoubtedly inform how the FCC and other federal agencies approach jurisdictional issues going forward.

THE COURT’S ANALYSIS

The FCC’s claim of ancillary jurisdiction or authority is an assertion that the FCC has the power to act even though the Communications Act does not contain an explicit grant of that power. The FCC can act via ancillary jurisdiction when it shows that the contemplated action reasonably relates to an area where the FCC has explicit statutory authority.

Prior court decisions have established a two-part test to determine if the FCC can assert regulatory authority over various communications services based on its ancillary jurisdiction under the Communications Act. The FCC must show that:

  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.

There was no dispute that the first part of this test was met because Title I covers nearly all forms of communication services. The court’s analysis related primarily to whether the second prong of the test was met.

The court considered and rejected three different types of arguments that the FCC made to support the enforcement of its Internet Policy Statement against Comcast. First, the FCC claimed that the United States Supreme Court’s 2005 decision in Brand X, which approved the FCC’s classification of high speed Internet service as a Title I information service, confirmed that the FCC had broad authority to regulate ISPs. Relying upon series of earlier Supreme Court decisions from the 1980s and 1990s that described the FCC’s “ancillary jurisdiction” as “a circumscribed range of power,” the court concluded that the Supreme Court’s statements in Brand X did not confer a sweeping grant of authority to regulate ISPs, but was merely a general acknowledgment that the FCC could impose regulations that were within its ancillary jurisdiction.

Second, the FCC claimed that various statements of Congressional policy contained in several sections of the Communications Act authorized it to regulate ISPs. The FCC’s theory was that these statements describe its responsibilities under the Communications Act, and that various courts had recognized that actions to effectuate Congressional goals were within the FCC’s authority.

The court disagreed, stating that “[p]olicy statements are just that – statements of policy. They are not delegations of regulatory authority.” The court concluded that the FCC may not rely on policy statements to support its ancillary jurisdiction because doing so “would virtually free the Commission from its Congressional tether.”

Third, the FCC argued that numerous specific provisions of the Communications Act supply the necessary link to justify the exercise of ancillary jurisdiction over Comcast. Each of these connections was rejected by the court. The court disagreed with the FCC’s interpretation of the jurisdictional scope of several statutory provisions. With respect to another statutory provision, the court reminded the FCC that the agency previously had concluded that the provision “does not constitute an independent grant of authority and that the FCC “remains bound by its earlier conclusion” and may not . . . depart from a prior policy sub silentio.” The court also declined to consider other statutory provisions because the FCC had not relied on them in its original decision.

IMPLICATIONS

Press reports are describing this decision as a broad rejection of the FCC’s power to regulate Internet service under its ancillary authority. It is not clear that this is the case, however, or that the FCC would lack the ability to regulate Internet service in the long run even without relying on its ancillary authority.

It is noteworthy that the court did not specifically say that the FCC lacks the authority to adopt regulations governing the Internet or ISPs’ services. Instead, the court held that the FCC “failed to make [the] showing” necessary to demonstrate that it had jurisdiction. There is some reason to believe that the FCC might have the ability to make a successful ancillary jurisdiction claim in the future: The court did not even reach two of the FCC’s arguments about whether specific statutory provisions would support its jurisdiction, and the court left the door open for the FCC to reinterpret a provision in a way that would permit the FCC to adopt Internet-related regulations. This decision also does not address the FCC’s ability to reclassify broadband service as a common carrier service, an approach that has been suggested in the open Internet proceeding. If the FCC were to reclassify broadband as a common carrier service, then all of the tools that have been used to regulate telephone service would be available for broadband, and there would be little question of the FCC’s ability to impose those regulations.

That said, in the short run this decision creates significant difficulties for the FCC. Among other things, it complicates the pending open Internet proceeding, which seeks to adopt specific rules based on the principles in the Internet Policy Statement. The FCC had proposed to rely on much of the same analysis it used in the Comcast decision to support adopting those rules. Now it will have to reconsider how to justify its legal authority. This may delay action in that proceeding, although it does not appear likely to derail it entirely.

Additional short-term questions are presented as well. For instance, in the FCC Order that led to the Supreme Court’s decision in Brand X, the FCC preempted local regulation of broadband services. While that Order no longer can be challenged directly, yesterday’s decision raises questions about the extent of the FCC’s power to preempt state and local regulation of Internet services. Some local regulators may now attempt to argue the FCC lacks that power.

This decision also raises new questions about the limits of the FCC’s ancillary authority. For the past several years, the FCC has won a series of victories in cases where its ancillary authority was challenged, most notably in the context of voice over IP service. While each of those cases was based on specific facts, the U.S. Court of Appeals for the District of Columbia Circuit, the same court that heard the Comcast case, consistently was sympathetic to the FCC’s expansive claims about its jurisdiction. This decision appears to pull back from that view, and may suggest new wariness about FCC action based on its ancillary jurisdiction.

This is particularly significant in the context the recently-released National Broadband Plan. Some elements of the plan, such as additional reporting requirements, still appear to be well within the FCC’s authority. However, the plan proposes a series of other requirements for broadband providers, ranging from speed disclosures to resiliency and recovery obligations, that would need to be justified as falling within some element of the FCC’s ancillary authority. Similarly, the FCC may need to rely on its ancillary authority to justify new programs to subsidize access to broadband service and deployment of new broadband service in unserved areas. This decision makes it more difficult to rely upon the FCC’s ancillary jurisdiction, and may push the FCC in other directions, including reclassification of broadband as a common carrier service.

The practical, short-term impact of the court’s Comcast decision on how ISPs will operate is unclear, however. Landline providers generally follow the basic principles outlined in the FCC’s Comcast Order in their operations. In any event, the open Internet proceeding remains pending, and until that proceeding is completed, ISPs are unlikely to make operational changes that might need to be reversed in a few months.

NEXT STEPS

The FCC has several options for responding to this decision. If it wishes to consider further court action, it can seek reconsideration from the three judges who issued this decision or from all of the judges in the U.S. Court of Appeals for the District of Columbia Circuit. It also can request the Supreme Court to review the circuit court’s decision, an option that may be of interest because of the way that this court read the Brand X decision; however, Supreme Court review of this decision is discretionary, not mandatory.

Given the existence of the open Internet proceeding, further appeals may not be an attractive alternative. Instead, the FCC could complete that proceeding and create a new rationale to justify its use of ancillary jurisdiction, in hopes of making a more convincing case. The FCC also could choose to rely on reclassification, although that it is politically and legally complicated.

This decision also may cause Congress to step in to define the FCC’s authority over Internet service. Obtaining sufficient consensus to enact new legislation likely will be difficult in the current political environment, however. Moreover, there are many disagreements even within each political party about the appropriate scope of Internet regulation. It may not be possible, particularly in an election year, to develop legislation that can pass both the House and the Senate and satisfy the President. Moreover, the FCC and the Administration may be reluctant to seek a legislative solution, since any legislation almost certainly would be limited in scope.