D.C. Circuit Rejects “Net Neutrality” Rule

Today, in Verizon v. FCC, the U.S. Court of Appeals for the D.C. Circuit vacated key portions of the Federal Communications Commission’s “Open Internet Order” — aka the net neutrality” rule.  The court held 2-1 that that FCC has the authority to regulate broadband providers, and that such regulation may govern broadband providers’ handling of internet traffic.  Despite this holding, the FCC did not prevail because the court also concluded (unanimously) that the FCC’s specific regulations here were unlawful because the FCC sought to regulate broadband internet providers as common carriers.  This victory for Verizon and the other petitioners may be short-lived, however, as the majority opinion suggests alternative steps the FCC could take to effectuate a “net neutrality” policy without exceeding its statutory constraints.

The majority opinion was written by Judge Tatel, joined by Judge Rogers.  Here is the introduction summarizing the court’s holding:

For the second time in four years, we are confronted with a Federal Communications
Commission effort to compel broadband providers to treat all Internet traffic the same regardless of source—or to require, as it is popularly known, “net neutrality.” In Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010), we held that the Commission had failed to cite any statutory authority that would justify its order compelling a broadband provider to adhere to open network management practices. After Comcast, the Commission issued the order challenged here—In re Preserving the Open Internet, 25 F.C.C.R. 17905 (2010) (“the Open Internet Order”)—which imposes disclosure, anti-blocking, and anti-discrimination requirements on broadband providers. As we explain in this opinion, the Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here—that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet—is reasonable and supported by substantial evidence. That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order.

Senior Judge Silberman authored a separate opinion concurring-in-part and dissenting-in-part.  Here is how it begins:

I am in general agreement with the majority’s conclusion that the Open Internet Order impermissibly subjects broadband providers to treatment as common carriers, but I disagree with the majority’s conclusion that § 706 otherwise provides the FCC with affirmative statutory authority to promulgate these rules. I also think the Commission’s reasoning violates the Administrative Procedure Act. These differences are important since the majority opinion suggests possible regulatory modifications that might circumvent the prohibition against common carrier treatment.

Judge Silberman’s opinion also ends with a brief summation of the case against the FCC’s rule:

This regulation essentially provides an economic preference to a politically powerful constituency, a constituency that, as is true of typical rent seekers, wishes protection against market forces. The Commission does not have authority to grant such a favor.