The U.S. Court of Appeals for the D.C. Circuit on Tuesday struck down an FCC order that purported to regulate Comcast’s Internet service on the basis of the FCC’s “ancillary authority.” The opinion has broad ramifications for Internet regulation and Internet service providers. Among other things, it imposes new limits on the FCC’s ability to justify regulation of Internet services and throws into question the FCC’s power to implement portions of the National Broadband Plan.

In Comcast Corp. v. FCC, No. 08-1291 (Apr. 6, 2010), the D.C. Circuit took up a 2008 FCC order that chided Comcast for blocking certain “peer-to-peer” file sharing over its network. In issuing the order, the FCC acknowledged that it lacked explicit statutory authority to regulate an Internet provider’s choices about how to structure its Internet service. It asserted that it nonetheless had the power to forbid Comcast’s anti-“peer-to-peer” initiative using its “ancillary authority” under the 1934 Communications Act – a catch-all provision that empowers the Commission 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 functions.” 47 U.S.C. § 154(i). The FCC argued that regulation of Internet service is within those powers because Congress stated, in various parts of the Communications Act, that it is federal policy to encourage “rapid, efficient” communications services, 47 U.S.C. § 151, and to “promote the continued development of the Internet.” 47 U.S.C. § 230(b).

The D.C. Circuit rejected the agency’s broad assertions of ancillary authority, holding that the FCC must justify Internet regulation on a case-by-case basis. Specifically, the court held that the FCC can only regulate an otherwise unregulated service (like Internet service) using its ancillary authority if so doing will advance the FCC’s regulation of one of the areas over which it has explicit authority – namely, telephony (Title II of the Communications Act), radio and broadcast services (Title III), and cable services (Title VI). The court explained: “[W]ith respect to the Commission’s section 4(i) ancillary authority . . . it is Title II, III, or VI to which the authority must ultimately be ancillary.” Slip op. at 22. The court then went on to conclude that the FCC had not adequately shown that Comcast’s anti-peer-to-peer initiative affected any of the areas over which the FCC has regulatory power.

The Comcast opinion is a significant setback for the FCC’s efforts to regulate the Internet. To be sure, it does not rule out all such regulation. The FCC can continue to regulate so long as it can demonstrate that regulation either (i) will advance the Commission’s oversight of more traditional communications platforms, or (ii) falls within the narrow band of Internet-regulation duties Congress has assigned to the agency. (For example, Congress authorized the FCC to collect data regarding broadband deployment.) But the order will make it difficult for the FCC to enforce “net neutrality” principles by overseeing how Internet providers manage their networks, absent new authority from Congress or articulation of a statutory basis not put forth in this case. In particular, the agency’s authority to act in its network neutrality rulemaking will have to be reconsidered. And it may block some initiatives in the FCC’s National Broadband Plan which rely on the assumption that the Commission can regulate the Internet.

The FCC could seek en banc rehearing from the full D.C. Circuit, although such rehearings are rarely granted (particularly when rehearing is sought from a unanimous panel decision). The Commission also could seek further review in the Supreme Court in a petition for writ of certiorari.

It remains to be seen whether the ruling will spur legislation. It also remains to be seen whether the ruling could lead the FCC to revisit its 2002 finding that Internet service is an “information service” and hold, instead, that it is a Title II “telecommunications service” – a type of service over which the FCC has much broader authority. Such a step could have extraordinary ramifications across the industry. Most importantly, it would define Internet providers as “common carriers,” and arguably would subject them a wide range of common-carrier regulation that traditionally has been applied to telephone service. In this scenario, Internet providers could be required to furnish service on the same terms to all comers; to “tariff” their services; to subject themselves to state regulation; and to “interconnect” with the networks of other carriers in ways that are not currently required. (Though it is by no means clear that that would be the result, given the FCC’s authority to forbear from applying these sorts of regulatory requirements in appropriate circumstances).