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D.C. Circuit Decision Casts Doubt on FCC’s Ability to Regulate the Internet

April 6 , 2010
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A unanimous three-judge panel of the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) has ruled that the Federal Communications Commission (“FCC”) lacks “ancillary” jurisdiction under the Communications Act to regulate the network management practices of an Internet service provider (“ISP”). The decision vacates an order adopted by the FCC in August 2008 that found that Comcast had violated the FCC’s 2005 “Internet Policy Statement” by interfering with the use of peer-to-peer networking applications on Comcast’s broadband network. The court’s decision calls into question the legal approach taken by the FCC regarding its authority to exercise jurisdiction over Internet and broadband services.

In the order under review, the FCC had found that Comcast violated the federal policy outlined in the Internet Policy Statement by discriminating against certain content on the network and “significantly imped[ing] consumers’ ability to access the content and use the applications of their choice.” Comcast changed its network management practices during the pendency of the FCC proceeding, but nonetheless appealed the order to the D.C. Circuit on the grounds that: (1) the FCC lacked jurisdiction to regulate network management practices; (2) the FCC’s action was procedurally defective under the Administrative Procedure Act and Due Process Clause of the U.S. Constitution; and (3) the order was arbitrary and capricious.

The D.C. Circuit’s decision invalidated the FCC’s order solely on the basis of Comcast’s jurisdictional challenge, rejecting the FCC’s argument that it had “ancillary authority” to regulate Comcast’s network management practices under Title I of the Communications Act. The court cited its prior decision in American Library Ass’n v. FCC, where it held that the FCC may exercise ancillary authority only when (1) the FCC’s general jurisdictional grant under Title I of the Communications Act covers the subject being regulated; and (2) the regulations are “reasonably ancillary to the FCC’s effective performance of its statutorily mandated responsibilities” under the Act’s other titles. All parties conceded that the FCC’s actions met the first condition because Internet service constitutes an “interstate and foreign communication by wire” under Title I of the Communications Act. However, the court squarely rejected the FCC’s claim that it had satisfied American Library’s second condition.

The FCC principally argued that several sections of the Communications Act justified the use of ancillary jurisdiction in the 2008 order, placing particular reliance on Sections 230(b) and 1. Each of these was rejected by the court either on substantive or procedural grounds.

Both Section 230(b) and Section 1 of the Communications Act are statements of Congressional policy. Section 230(b) states, in relevant part, that “[i]t is the policy of the United States . . . to promote the continued development of the Internet and other interactive computer services” and “to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet.” Section 1 sets forth the reasons for the creation of the FCC, stating that the FCC’s purpose is to regulate “interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, Nation-wide, and world-wide wire and radio communication service . . . at reasonable charges.”

The D.C. Circuit flatly rejected the FCC’s reliance on Section 230(b) and Section 1 as bases for the exercise of ancillary authority over Comcast’s ISP services, holding that “policy statements alone cannot provide the basis for the FCC’s exercise of ancillary authority. . . . Policy statements are just that – statements of policy. They are not delegations of regulatory authority.” According to the court, if the FCC were permitted to regulate pursuant to ancillary jurisdiction using merely statements of Congressional policy, “it would virtually free the FCC from its congressional tether.” The D.C. Circuit made clear that policy statements are not sufficient to justify the use of ancillary jurisdiction absent a clear link to a section of the Communications Act that delegates regulatory authority to the FCC.

The FCC also attempted to argue it had ancillary authority to regulate Comcast’s network management practices under a number of other statutory provisions, including: Sections 257 and 706 of the Telecommunications Act of 1996, Sections 201, 256 and 623 of the Communications Act and the FCC’s general Title III authority to regulate broadcasting. The court dismissed each of these statutory bases finding variously that the provisions cited by the FCC did not contain affirmative grants of jurisdiction, did not meet the “reasonably ancillary” test, or had not been relied upon by the FCC in adopting the order under review.

Going forward, the D.C. Circuit’s decision will likely present a substantial complication for the FCC in its efforts to regulate network management and promote “network neutrality.” In October 2009, the FCC released an NPRM (see our “Memorandum to Clients” dated October 22, 2009) inviting comments on draft rules that would codify the FCC’s 2005 Internet Policy Statement and otherwise broaden the FCC’s regulatory role with respect to ISPs. The D.C. Circuit’s decision casts substantial doubt on the FCC’s jurisdiction to adopt such rules. It also complicates several of the FCC’s efforts under its recently released National Broadband Plan (see our “Memorandum to Clients” dated March 19, 2010).

The FCC released a statement shortly after the release of the D.C. Circuit decision indicating that the FCC intended to find a way to regulate broadband, stating that, “[t]oday’s court decision invalidated the prior FCC’s approach to preserving an open Internet. But the Court in no way disagreed with the importance of preserving a free and open Internet, nor did it close the door to other methods for achieving this important end.” With the option of regulating the Internet via ancillary jurisdiction cast into doubt, the FCC either will need specific Congressional authority or will need to reclassify ISP service as a Title II common carrier service in order to proceed with Internet and broadband regulation. Statements by two of the Democratic commissioners indicate that use of Title II would be their preferred method of proceeding, while the two Republican commissioners have already issued statements expressing their opposition to such an approach.

We would be pleased to respond to any questions regarding these matters.

The FCC also argued that the Supreme Court’s 2005 decision in National Cable & Telecommunications Ass’n v. Brand X Internet Services, which upheld the FCC’s classification of cable modem service as an “information service” rather than as a “telecommunications service,” recognized the FCC’s ancillary jurisdiction to regulate network management. According to the D.C. Circuit, while Brand X did uphold the FCC’s ancillary jurisdiction to regulate ISPs’ unbundling of services, that decision did not enable the FCC to regulate all activities of ISPs. The D.C. Circuit reiterated that under the body of case law regarding ancillary jurisdiction, the FCC must provide statutory authority for each specific type of regulation for which the FCC wishes to use ancillary authority. The fact that an industry can be regulated under ancillary jurisdiction with respect to one type of action does not mean that industry is susceptible to regulation in all aspects.