This week, the D.C. Circuit issued its long-awaited opinion in Mozilla v. Federal Communications Commission in which the court largely upheld the Commission’s 2017 Restoring Internet Freedom Order that reversed the Obama Administration’s 2015 decision to apply common carrier regulation to the Internet. While the court upheld the bulk of the agency’s actions as reasonable under the Supreme Court’s rulings in Chevron and Brand X, the court also found that the agency lacked plenary preemption authority over state efforts to regulate the Internet under the FCC’s theory of the case. As such, this case does not mark the end of the net neutrality debate; instead, it simply closes one chapter and opens a new one.
In this teleforum, a panel of legal and economic experts will share their views of the court’s reasoning and of the implications of this case upon the on-going net neutrality debate.
Dr. George S. Ford, Chief Economist, Phoenix Center for Advanced Legal & Economic Public Policy Studies
Russell P. Hanser, Partner, Wilkinson Barker Knauer, LLP
Prof. Daniel Lyons, Professor of Law, Boston College Law School
Moderator: Lawrence J. Spiwak, President, Phoenix Center for Advanced Legal & Economic Public Policy Studies
Please dial 888-752-3232 to access the call.
Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Telecommunications & Electronic Media Practice Group, was recorded on Friday, October 4, 2019, during a live teleforum conference call held exclusively for Federalist Society members.
Micah Wallen: Welcome to The Federalist Society’s teleforum conference call. This afternoon's topic is titled, “Next Steps in the Net Neutrality Saga – Mozilla v. FCC.” My name is Micah Wallen, and I am the Assistant Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today's call.
Today we are fortunate to have with us four premier experts on this topic, including our moderator, Lawrence Spiwak, who is President at Phoenix Center for Advanced Legal & Economic Public Policy Studies. After our speakers give their opening remarks, we will then go to audience Q&A. I will leave it to our moderator, Larry, to introduce the rest of our panel. Thank you all for sharing with us today. Larry, the floor is yours.
Lawrence Spiwak: Well, thank you very much and good morning, everybody. Today we’re going to do a Courthouse Steps of the long awaited case of Mozilla v. FCC. Usually at the FedSoc when we do Courthouse Steps, we try to do it almost immediately to get initial reactions, but as this is over 180 pages, as we were all joking, it took about three days for all of us to do at least one read. So we have put together an excellent panel of everybody who’s done a lot of work in this.
Let me introduce them all really quick. Again, my name’s Larry Spiwak. I’m the President of the Phoenix Center. I’m also on the Executive Committee for the Telecom Practice Committee for the FedSoc. We have Russ Hanser, who’s a partner over at Wilkinson Barker Knauer, which I believe I pronounced that correctly, Professor Daniel Lyons, who is a Professor of Law at Boston College Law School, and Dr. George Ford, who’s the Chief Economist here at the Phoenix Center. So we’re going to try to bring both a legal and an economic perspective.
So let’s get started. First, let’s just do, for those who are unfamiliar with the background of the case -- it’s amazing when one can type it out and you have the automatic numbering. This is essentially the ninth case in this ongoing saga of the open internet debate. I guess it all started legally with the Brand X case, which was a Supreme Court case which essentially held that the Communications Act is ambiguous, and therefore under Chevron, the FCC has discretion to define broadband internet access either as a Title I service or as information service, or as a common carrier status under Title II.
But this whole thing, just again for people who aren’t familiar with it, you can go all the way back to the Kevin Martin era where he had his four principles, to then we had the first case which was the Comcast case, and the D.C. Circuit ruled that was pretty much an ancillary authority case, that they didn’t have it. That was followed up in 2010 with the first set of open internet rules. Those were then overturned by the court in Verizon, mainly because they said, “This looks like you’re acting like a common carrier, but you’re saying that it’s a Title I service, so pick one,” and they had provided a road map.
Then we had an election, and the Commission then decided to go whole hog and then went with the 2015 Open Internet Order, which went full reclassification. That was then upheld by the D.C. circuit in a case called USTelecom, again, citing Brand X primarily as their main authority on the Commission’s authority to define broadband internet access. In another election, we then had the 2017 Restoring Internet Freedom Order in which the current FCC restored broadband internet access back to Title I and a light touch. And then that was appealed in Mozilla v. FCC.
So there’s a tremendous amount of material to unpack, and that’s the case we’re going to talk about today. So let’s start with what I would describe as a topic called Chevron, Brand X, and USTelecom. So first thing that the court did, again, going back citing the Chevron deference and Brand X and also in USTelecom, they upheld as reasonable the FCC’s determination that broadband internet service can again be redefined as a Title I information service, mobile broadband can again be redefined as a private radio service, and that Section 706 of the act can again be defined as hortatory and not as an independent source of regulatory authority. So in reading the case, the majority seemed to emphasize that they didn’t, again, want to second guess the FCC and set quite a low threshold for agency deference.
So let’s talk about the implications of that. I’m going to throw the first questions out to Russ and to Daniel. Is this appealable, or is the caselaw pretty much settled that the Communications Act is ambiguous? Do we have a legal merry-go-round now? Let me toss it to Russ first. What do you think about it?
Russell Hanser: Thank you. And thank you for having me. So is it appealable? Yes, it’s appealable. And in fact, Judge Millett and Judge Wilkins each separately invite appeal and suggest that they both believe that the factual foundations that led to the Brand X decision have changed. And while the statute is still the statute, they believe the way that broadband internet access has changed since 2005 when Brand X was issued would lead the Supreme Court, or should lead the Supreme Court in their view to the view that broadband internet access can only be deemed an integrated common carrier service with separate information services attached to it, but at its core, a transmission telecom service. They seem to be inviting a cert petition seeking that result so it can be appealed, and one can debate whether they’re right or not that this is the only way that you can now read the statute, but they at least point toward the road toward appeal to the Supreme Court, at least.
Lawrence Spiwak: Daniel?
Prof. Daniel Lyons: Yeah, I don’t disagree with that. I think this is the one part of the Mozilla appeal that most people were pretty sure the FCC was going to win on because it’s pretty squarely controlled by Brand X. The D.C. Circuit’s hands were tied by the Supreme Court’s earlier finding that the statute was ambiguous. That having been said, I agree with Russ that Judge Millett and Judge Wilkins’s concurrences are pretty much a plea to the Mozilla petitioners to try again and see if they can’t convince the Supreme Court that the factual underpinnings of the Brand X decision are no longer valid.
Lawrence Spiwak: Yeah, but does the Court really want to get into factual underpinnings?
Prof. Daniel Lyons: I don’t think so. I mean, so there’s a strong sense in admin law jurisprudence that the deeper down you are in the weeds, the more the Court’s likely to defer to the agency, which is, of course, Congress’s designated expert on these sorts of technical questions. So although seeking a cert petition is really the only way potentially out of the Chevron bucket for petitioners on this particular legal question, I’m still not convinced that it’s anything more than a pretty difficult uphill battle.
Russell Hanser: And I agree with that. I’d note that the majority of the Court was not there for Brand X, but I don’t view this as the kind of question that the Supreme Court’s champing at the bit to readdress. It’s not a big doctrinal question or a big approach to statutory interpretation or approach to common law kind of question. It’s a fairly narrow statutory question which has great import for the economy but is not, I think, the kind of question they necessarily feel like they need to jump in on.
Prof. Daniel Lyons: And essentially what you would be asking the Court to do is to find that despite Brand X’s earlier interpretation to the contrary, that in fact the Communications Act was clear in the way that it classifies broadband. And I don’t know that there’s anybody who can say with a straight face that Communications Act was clear about this, given the long history that we’ve had of going back and forth on this question.
Lawrence Spiwak: Yeah, it seems to me that part of the problem with the debate, certainly in the litigation strategy, is that both sides keep hoping that the Court will deliver a definitive statutory interpretation and go, “Ah-ha, that’s it!” And yet, the courts constantly are going, “No, I don’t want to touch this. It’s a deferential issue.” And so that’s an interesting point.
Well, as part of this discussion, we’re very fortunate to have George Ford on the phone here because under Fox Television and way under deference, you’re allowed to change your mind so long as you provide a reasoned explanation. And a large chunk of the decision was dedicated to looking at how the FCC conducted a cost-benefit analysis, and in particular whether or not -- I guess their central argument was that net neutrality would depress investment. George has done a lot of work; in fact, his work was the central citation, and just did a piece of the review of network economics reviewing what the Commission looked at. So I want to give George a chance because I think it’s important. Did the Court get the economics right? Did they interpret it right? What’s the story with that, George?
Dr. George Ford: Of course not. The courts rarely get the economics and never get the statistics right. But I think what’s interesting is they know that. They made it very clear that they didn’t -- this was the FCC’s business, not their business. They weren’t referees of economics journals. And then they, of course, went on and talked about it for four or five paragraphs, which was sort of strange. But I think that in the sense that they deferred was good.
The problem I had with it was had we had a different chairman, there would have been a different choice of evidence. I would have been the dog of the room, and I guess Chris Hooton would have been the star. But what worries me about that, and I think this decision sort of locks it down, is that there is no review for how the FCC embraces evidence. It is a choice of the FCC, and as long as everybody gets a trophy and gets talked about and the FCC makes some determination, then that evidence is the best evidence available and that’s the proper interpretation. And that’s just politics, basically. So I think that economics and statistics -- good economics and good statistics is not going to be the driver at the FCC on this issue. It’s just going to be whatever the chairman decides he wants to support.
Lawrence Spiwak: All right. So let’s move on then to the next area of discussion, arbitrary and capricious. I found it interesting that the court said that even though this is mostly a Chevron case on deference, that did not relieve the agency from its duty to make sure that its work was not arbitrary and capricious. And it turned out that the court found the agency failed in three areas in regard to its decision making. One was public safety, which I admit was a bit of a surprise to me. The second one was pole attachments, and the third was universal service, and in particular, Lifeline, which I think are more statutory problems.
So the question I have, again, back to Russ and to Daniel, the court did not vacate, they just remanded because as the court said, they did not want to flick the on/off switch of Title II/Title I again. Is this fixable? What do you think?
Russell Hanser: So this is Russ. I think it is eminently fixable. The question I have is when will it be fixed, and will it be fixed? So the FCC, for those who aren’t familiar, the remand means everything stays in place and the FCC is asked to go back and look at these questions again. The FCC has a long history of letting those kinds of remands sit for months or years because there’s no action forcing event. They haven’t lost the authority to enforce and uphold the order. So especially when we’re coming into an election year, the current chair might not be looking to reenter this issue and be on the news again and might maybe issue a notice that gets some comment but then comes to the next chair. That’s possible.
But as far as whether they’re fixable, I think yes. So can the FCC go back and explicitly address why this regime will not harm public safety? Absolutely. Can it go back and talk about Lifeline and why Lifeline, I assume, would want to say is still supportable under the information service designation? I think absolutely again. When you look at Section 224 which governs universal service, there’s evidence in both directions about what Congress thought, but there are clear references to advanced services and information services. The Commission could, clearly, if it wanted to, get to a place where Lifeline was still supportable within this broader construct of the information service classification.
And then the pole attachment piece is actually something they’ve been dealing with in some of the other infrastructure orders that have been coming out in the past couple of years. Section 224 and also a couple of other provisions, Section 253 and Section 332(c)(7) all have to do with access to infrastructure and are tied to telecom service or common carrier service or CMRS. And the Commission has generally dealt with that by saying most services nowadays are comingled, so you have the same facility that is carrying plain old telephone service but also these more advanced services that now are information services, and as long as you have some telecom service component in the mix, you’re able to get access as if was all a telecom service.
That’s been the approach up until now. Eventually, one day, I think we’ll have to move beyond that when we move to a world where everything is an information service, but that may be a call for Congress, or maybe that the FCC using its preemption authority or -- I’m sorry, its forbearance authority or its ancillary jurisdiction can construct some regime that doesn’t require Congress to step in and act so that information service providers are still able to get access to that infrastructure.
Prof. Daniel Lyons: Yeah, this is Daniel. Yeah, I completely agree with that. I defer to Russ to all questions on pole attachment. I teach telecom law, and it’s still the area where when we get to that part of the syllabus, my eyes kind of glaze over. There is an -- incredibly complicated. That having been said, I think, absolutely, there’s no question the FCC can address the Lifeline and the public safety issues. In the past, the FCC has looked at the question of, for example, funding of universal service by extending the USF surcharge to VoIP service, which is an information service because it’s related to traditional landline telephony. To the extent that the Lifeline broadband program is still facilitating voice service it seems to me a pretty easy way for the FCC to extend its ancillary jurisdiction in that direction.
And on the public safety piece, let me credit to Cathy Sandoval over at Santa Clara Law for really pushing this issue and getting it on the court’s radar screen. But that having been said, my sense is if the concern is that public safety providers may not be able to use the network as easily, it seems to me that’s an argument in favor of some kind of prioritization of traffic, not against it. So if anything, the public safety argument seems to cut in favor of the Restoring Internet Freedom Order from my perspective.
Lawrence Spiwak: Yeah, I had the same thought. My reading of it is particularly -- I agree with you 100 percent on the public safety issue. But again, you look at the pole attachment issue and you look at the universal service, I mean, the Commission has for almost 20 years been doing this dance of trying to put the round Title I information service peg into the 1934 square Title II service hole. I mean, we have this binary choice because Congress hasn’t fixed this.
And the Commission -- I thought Russ’s discussion was excellent. “If you have a touch of telecom service, that’s doing enough.” Doesn’t that kind of rip the Band-Aid off? I mean, we keep doing this. I’m just throwing that out there, like doesn’t this auger again for why we need legislation here because we’re still back to this binary choice, and we’re just spending hours and hours of very talented lawyers like Russ who are available at reasonable rates, you’d think they’d try and figure this out to get this stuff done. But it just seems to me this is sort of the problem with the binary choice of the statute.
Prof. Daniel Lyons: I think that’s right, and I think it’s not only a choice in a statute where the writers weren’t entirely sure where the technology was going to go, but at this point, we’re closing on a quarter century since the 1996 act locked all this into place. So we’re getting to the point where a facelift on this act is much needed. And you even see that in Justice Millett’s concurrence, and part of it is begging the Supreme Court to retake the Brand X question, but part of it is the appeal that many of us have issued to Congress to simply revisit this area and update the law so it doesn’t reflect -- and here where the primary concern of the statutory writers was how are we going to get competition in local telephone service, right?
Lawrence Spiwak: Right. Right.
Russell Hanser: I agree with Dan 100 percent there. The bottom line is in 1996, most people in Congress, even on the relevant committees, were not really cognizant of what broadband internet access was. They certainly weren’t aware of what broadband internet access would look like in 2019. I’d venture to say some people in Congress maybe even today don’t know what broadband internet access is, but they still need to update the act. That’s clearly the way out. I used to always joke that this debate was good for my daughter’s college fund but bad for America. I’ve been able to charge those reasonable rates for a long enough that now I think we need legislation to bring an end to it.
Lawrence Spiwak: Well, and that’s an excellent segue into our next section, which is probably the big enchilada of this case, which is the preemption question. Telecom has for years had a very tenuous relationship between interstate commerce and intrastate commerce, and questions of preemption have always come up. In fact, I think one of the interesting things about the ’96 act was the inclusion of 253 with granted an express delegation of preemption authority in the act. Preemption comes up in a whole variety of issues from broadband to a lot of stuff.
So in the Restoring Internet Freedom Order, let’s get back to the case in point. The FCC basically attempted to issue a broad -- and I love how the court describes it, capital P, capital D, Preemptive Directive against state efforts to regulate the internet. Now, for those of us and all of us on the phone who have been doing this for a long time, the initial reading I think in the FCC’s defense, this has been done going all the way back to the infamous Pulver Order in the ‘90s when the FCC said that VoIP is a Title I service subject to exclusive federal jurisdiction. This is not unusual, but yet we have an interesting case here where the court -- and this is the one part of the decision that the court out and out vacated.
The court vehemently agreed with the FCC’s analysis. What the court basically said, and I’m going to try to paraphrase this, it said the following: one, the FCC can’t claim express preemption authority because they rejected Title II, and that’s where Section 253 lies. They decided to go into Title I. Second, the Commission, to use the Court’s language, “can’t house,” close quote, the preemption direction under ancillary authority because the court said Title I is not a direct grant of authority. It has to be ancillary to something in Title II, Title III, or Title VI. So I think the Comcast case and the court basically reasoned that because the FCC abandoned Title II, there’s nothing to be ancillary to, so therefore, there’s no ancillary authority. And then the third thing said you may have conflict preemption, but there’s no specific case before this court, and the Commission’s ruling is just far too broad.
Now, the flip side of that is Judge Williams’s dissent. And his argument, again, paraphrasing, he basically says the majority’s view makes no sense. You can’t have an affirmative policy deregulation. But yet under the majority’s view according to Williams, if you do affirmative regulation, preemptive power may be implied, but for a lawfully adopted deregulatory [inaudible 19:52] expressly, close quote. That’s a [inaudible 19:56].
So let’s unpack this. There’s so much to do. And I’ll throw out first, again, to our lawyers, Dan and Russ. Does the majority’s view make sense, or does Williams make sense? What do we think?
Prof. Daniel Lyons: This is Dan. I’ll take the position that I actually think the majority got this analysis right, as seemingly surprising as the result is. The question about whether or not the FCC could issue an express preemption clause turns on the ability to cite some statutory provision or Congress granted the FCC the power to preempt. And I think the court’s right that the two provisions that the FCC cited, the impossibility exception and the federal policy of non-regulation, each of them facilitates preemption, but neither of them can serve as a fount of preemptive power in and of themselves. So think the court was actually right that to the extent that the FCC relied on those particular branches that they didn’t support the weight that the agency was trying to give them.
That having been said, I think the court was also correct and wise to reserve the question of conflict preemption because conflict preemption isn’t a question of does the agency have the power to preempt, but rather dealing with what’s the fallout of having dual sovereigns, a federal authority and a state authority regulating together in the same area? When these two interact in ways that cause a conflict, such that state regulation is conflicting with or frustrating the achievement of a federal objective, in that case, the state policy must yield. It’s preempted not by any specific act of the agency, but by the supremacy clause itself. The supremacy clause is doing the work that the agency was trying to get the impossibility exception and the federal policy of non-regulation to do.
Now, for conflict preemption to work right, you have to identify an actual conflict, and you can’t do that in the abstract. And so the court was right that we can’t engage in a conflict preemption analysis until we have a specific state order before us to compare to the Restore Internet Freedom Order to decide whether, in fact, it’s creating an actual conflict.
Lawrence Spiwak: Russ, what do you think?
Russell Hanser: Yeah, so everything Dan said, and then let’s look forward. So what happens next? What happens when specific laws are challenged? Two of them have been challenged already with cases being held in abeyance. And when specific laws are challenged, we may come to find that there actually is still a lot of preemptive power in this order because -- or in the federal regime. So the state does something. It takes some action that regulates broadband, let’s say it adopts something virtually identical to the FCC’s 2015 order. And either the federal government or an ISP sues and says that’s preempted by federal policy. What happens then?
Well, the first question is who gets authority to regulate what? And under Section 152 of the act, there’s a rough division where the federal government gets control over interstate traffic, and the states get control over intrastate traffic. And if states regulate intrastate traffic or try to regulate intrastate traffic, but in a way that it encumbers or affects the interstate traffic and it conflicts with federal policy, that’s where you have a foul and the state law is preempted. And it seems to me that almost anything states do that respects the way traffic is treated, at least, can you speed up, can you slow down, what can you do with traffic, it’s going to be almost impossible to limit that to intrastate traffic. It’s not even clear there is such a thing as intrastate broadband internet access traffic. And even if there is, the vast majority of it is interstate, or indeed, international. So that’s part one.
And then the question is what does it conflict with? And some of our friends on the Title II side of the debate have been arguing, I’ve seen, that it can’t conflict with anything because there’s no FCC rule, so how could it conflict with an FCC rule? And I think that misunderstands the question because the question is not does it conflict with an FCC rule, but does it conflict with federal law or policy? And while the court was right there that the FCC is taking itself out of the game of regulating broadband, that doesn’t mean there’s no federal policy.
There is a federal policy. Congress made clear as interpreted by the FCC, anyway, that nobody has authority to regulate this at the federal level. There is to be no regulation, and we still have the policy statement in Section 230, which the court said doesn’t confer power, but it still does state a policy. So I think it’s going to be very hard for states to show that their rules, whatever they are, to the extent the affect traffic, only affect intrastate traffic. And to the extent they do affect intrastate traffic, I think it’s going to be very hard for them to show that their rules don’t conflict with the federal policy which still is a federal policy of non-regulation of these services.
Prof. Daniel Lyons: Yeah, I think that’s right. I think the flaw in petitioner’s argument is the notion that by adopting the Restoring Internet Freedom Order, the FCC has basically abandoned the field and therefore allows states to do whatever they want. I don’t think that’s right. I think when you look at Brand X, what it tells us is that the FCC has the ability to define broadband internet access as either a Title I information service or as a Title II telecom service. And the subsequent case law suggested that the FCC also has the ability, depending on how you interpret Section 706, to add to the bare bones of Title I, and it also has forbearance authority to subtract from the full panoply of common carriage responsibilities under Title II.
So what you see is that the FCC actually has this broad range of potential regulatory options that it could take, ranging from complete non-regulation on one end to full common carriage and tariffing on the other, and a number of points in between. What the FCC’s done is it’s chosen a spot in between. It’s decided that the best thing for broadband policy is a regime of transparency and disclosure rules backed by general consumer protection and antitrust laws. And the Mozilla court found that that was a reasonable decision.
But importantly, the Restoring Internet Freedom Order also says there’s a reason why we’re not going any further because the more heavy handed 2015 rules have a negative effect on consumers and on innovation. It’s not that the FCC’s abandoning the field or that it’s setting a minimum. What it’s setting is both a floor and a ceiling for broadband. And any state regulation that I think would try to reimpose the 2015 order would interfere with that deliberate choice, that very careful balancing that the FCC’s done. And in that sense, I think most of what states would want to do are probably going to be preempted.
Lawrence Spiwak: Yeah, a couple points there. I think you guys make excellent observations. Again, as I said a moment ago, if you go all the way back to the Pulver Order where I remember, “Oh, we’re unregulated.” I said, “No, you’re unregulated. The order was very clear. We’re subjecting that service to Title I jurisdiction subject to exclusive federal jurisdiction,” so it was more of a non-regulation -- like we have the authority to regulate you, we’re just not going to do anything about that. But the majority seems not to be convinced by that argument.
And then if you look at Williams’s dissent, he was actually rather skeptical of the conflict because as you said just a minute ago, Dan, that he said, well, gee, because of the way the majority said you’ve completely eviscerated Title II, there’s nothing -- or abandoned Title II, excuse me, there’s nothing to be in conflict with. It’s not even the rules. It’s a statute as opposed to just a federal policy. I suppose that does leave you with local litigation of some sort of dormant commerce clause problems or arguments that you could make. I mean, this also now comes up, I guess, in the privacy debate as well where people are talking about the CCPA, the California Consumer Privacy Act.
But there is an effect to this. And now we’ve got at least for the short term until we figure this out, sort of death by 50 cuts. And I think it’s important to talk about what we would call the extra-jurisdictional effects of this. And I want to bring George in here for a minute. This is something that you’ve done a lot of research on over the years. What do you think is going to happen with this? I mean, you’ve done some papers on this.
Dr. George Ford: I hope what happens is that the FCC takes on California and is successful and does it quickly. That’s what would be the ideal situation. I think I agree with the other guys that the FCC will probably win if it preempts any attempt to apply common carrier regulation. And I don’t know if this is a legal argument or not, but as you go back to the Verizon case, the court said you can’t impose common carrier regulations on a Title I service. And I think any state regulation is going to try to do exactly that. So I don’t know if that’s valid precedent or not and leave that to you guys to decide, but I think that’s going to happen.
And if not, it’s going to be a mess. And I think any court would see that you would have -- you could easily have a state like California try to do common carrier regulation, but what happens when you have a conservative state come in and do Title I regulation? Well, which one is it? So it would just be a mess, and I think the courts will see it. And honestly, I don’t think there is an intrastate portion to broadband, so the Pulver type model may just shut the whole thing down to start with.
Lawrence Spiwak: Thanks, George. So a question back to Russ and Dan. So where are we, do we think, legally? Does the FCC try to appeal this portion of the order, seek cert? Do we have a parallel litigation track? Well, I guess we do because those cases were held in abeyance. Where are we legally/procedurally, posturally in this preemption issue because I don’t hold any hope of getting any legislation in the next year.
Russell Hanser: Dan, do you want to start on that one?
Prof. Daniel Lyons: Sure. So I think there’s a number of options that the agency could take. It could, of course, seek either en banc review of the preemption question, or it could seek cert. I don't know that that’s terribly likely. I think without question, we’re going to see both in the California decision and in the Vermont decision some movement pretty quickly now that the Mozilla case has come down. So each of those courts is now going to have to address the question of whether the state statutory provision actually conflicts with the Restoring Internet Freedom Order.
One other option available to the agency is to issue a declaratory ruling, to take it upon itself to decide whether and to what extent California’s SB 822 and Vermont’s S.289 and the other state statutes that are out there, to what extent they conflict. That would allow the agency to come out an say very clearly, “We think that there is a conflict here, and these are the places where it conflicts.” And so to the extent that there’s any question about what the agency thinks about the conflict preemption analysis, that would allow the agency to offer its view on that case-by-case analysis that would guide the court’s decision making.
The key Supreme Court case on this is a case called Geier v. American Honda Motor Company where the Supreme Court was engaged in a similar analysis about a federal regulation that says, “We’re going this far and no further,” and a state regulation that tries to go -- or a state tort law claim that tries to go further than that. And the Court found that an attempt to go above this balance that the Feds had set meant that it was in conflict with the federal policy, and therefore preempted. And interestingly, the Geier Court looked to what the agency actually said about the conflict to inform the question about whether there was a conflict. In other words, the Court finds that the agency’s views about whether there’s a conflict are persuasive in the conflict preemption analysis.
Russell Hanser: So first, I want to second Dan’s reference to Geier, which I think is the most important case here and the case that I found myself citing a lot when I was writing comments in the various rounds of net neutrality rulemakings. And it really does seem to stand for this proposition that the federal decision not to regulate can have preemptive effect just as much as a federal decision to regulate. As Dan alluded to, that was a matter of preempting state tort law, which is an area very, very firmly within state control. That tells you a lot about the power of preemption in those cases.
I like the declaratory ruling idea. I would also suggest that if I were an ISP looking forward to 50 rounds of litigation or more, I might like from the FCC a declaration that there is no intrastate component or that it is de minimis because I think that also speaks to the first part of that conflict analysis, and I think the FCC as the expert agency is well placed to make that kind of a determination and evaluate the evidence.
Lawrence Spiwak: All right. Let me ask one question because I forgot to mention earlier, one of the things about the case that I found really interesting and was actually surprising was that the court did uphold the FCC’s transparency rule, and essentially then meaning this actually then goes to the issue of seeding the field, which has come up in the preemption discussion a moment ago. A lot of argument was that the FCC was, “Well, you’re seeding the field.” “No, we’re doing the transparency rule, and therefore consumers will be protected both by antitrust and other consumer protection mechanisms.”
Just wondering if you guys had some quick thoughts on that. I think that’s actually a very big thing that came out of the case. Didn’t get a lot of attention, but I think it’s a major victory for the FCC. Russ, do you have any thoughts?
Russell Hanser: Yeah. I mean, if you had asked me where the weakest spot of the order was a week ago, I would have said that I thought it was on the Section 257 rationale for the transparency rule. And my worry -- as someone who generally represents ISPs on this issue, my worry was that the court would strike that and then would say the entire structure is founded on the existence of the transparency rule and therefore it all has to go. So I was pleasantly surprised that they upheld on that, although as the court noted, it invited that approach in the 2010 Comcast decision that Larry referenced earlier.
I did find it odd -- and just to go back to preemption for a second, I guess, in relation to transparency, I did find it odd that the court on the one hand said, “Sorry, FCC, you’ve written yourself out of all regulation, and if you can’t regulate, then you can’t preempt,” at the same time that it said, “Yep, you have authority to impose this transparency rule on broadband.” That seemed to be in some tension.
And on that point, I will just note as an aside, what if the FCC changed its mind on Section 706 and found that that was indeed an affirmative grant of authority? The D.C. Circuit has already upheld that view in the 2014 Verizon decision without changing the preemption analysis because at that point, the FCC would have a lot of affirmative authority over broadband. So I view the transparency piece and this question of 706 as both pointing toward potential weaknesses in the preemption analysis going forward.
Prof. Daniel Lyons: Yeah, I don’t disagree with that. I think the majority in Mozilla makes more than maybe it should have of the FCC’s statement at oral argument that the preemption directive, as it calls it, went further than a traditional conflict analysis. I don’t actually read the Restoring Internet Freedom Order as doing that. It seems to me what the agency was saying was any state law that conflicts, we hereby preempt it.
And I think that’s part of what Judge Williams is struggling with in the dissent. If the express preemption clause does nothing more than explain very clearly at the outset that the result that would occur from a conflict preemption analysis anyway, then what’s the harm of having it in? The majority kind of bats that away by saying, “Yeah, but the FCC said at oral argument that, in fact, the express preemption clause goes further,” and I think that’s what was fatal to them.
Lawrence Spiwak: Yeah, George and I were talking about this last night. I mean, one of the things that kind of struck me was wrong is the majority sort of said, “Well, you’re picking and choosing Title I and Title II, sort of taking them back.” And it’s funny because if you look at the Verizon case -- excuse me, the USTelecom case and what the Commission did in the 2015 rule, they mixed and matched whatever they could just to get it through. I mean, there’s huge intellectual inconsistencies in the 2015 order and also in the court’s acceptance of the Commission’s rules. Most notably, they didn’t follow the law under 202, which is undue discrimination because the FCC decided to do undue discrimination not under 202, which is the standard statute that governs it, but under the catch-all of 201. And the court said, “Okay, we’ll just let that go.” So I think that’s a really good point.
Well, let me ask you one more question, then we’ll open it up to audience questions. And I think this is interesting. What struck everybody as most interesting about the decision? This is sort of an odd -- the thing -- I’ll start. The thing that I found interesting, putting aside the reasoning, was that I though this was a rather testy opinion. And what I found, sometimes even chuckled, was that the court, I think, went out of its way very fairly on both sides to call out B.S. that arguments of -- that both parties were making. And you don’t see that a lot. It was a very punchy decision. I don’t know whether that’s worth anything, but I just found it interesting about the decision.
So Russ, what did you find sort of interesting, the big takeaway from the decision?
Russell Hanser: So I agree with you about the punchiness. It was a long opinion, but it’s actually kind of fun to read on both sides. They’re clearly working for portable turns of phrase and punching back at the alternate arguments.
But what struck me the most was everyone’s going to focus, obviously, on the stuff that was overturned, but what struck me the most was how diligently the court worked to actually extend deference. At the argument, it sounded like some of the judges, especially Judge Millett, were working for ways around Brand X, were working on ways to get over the hump and to reject the FCC’s argument. And that’s not the opinion that came out. The opinion that came out does express several times that the FCC just barely made it over the line or would have been better if the FCC had done this or that, but then said, “But we are a reviewing court, and it’s not our job to second guess.” And they acted within the scope of their responsibility, even if barely so.
On the debate between George and Hooton, they sort of said, “Look, there’s a lot of economists. They’re smart people. We are not well suited as an institution to look at this, so what the FCC did was fine.” So I think that the judges really upheld this idea of Chevron deference and really acted pursuant to it. And it’s easy to be cynical and adopt a kind of legal realist view that judges are just there to affect their own policy preferences under the guise of law, and I think occasionally cases come along that show you that that’s not what’s going on. And I think this is one of them.
Prof. Daniel Lyons: Yeah, I agree 100 percent. First of all, as someone who spends most of his time struggling to explain this complex area of the law in terms that laypeople can understand, this is a really readable opinion. It’s long, but it really makes complex technical arguments fairly accessible to someone who doesn’t have a ton of background in the area. And I totally agree with Russ that it really is a model of judicial restraint. You’ve got clear indication from two of the three judges that if our hands weren’t tied by Brand X, we probably would have come out very differently on the Chevron question.
The court has no problem with calling out where it finds that the agency’s analysis fell short and called it arbitrary and capricious, but it doesn’t take the opportunity then to vacate the order on that basis. I think the court’s right on both of those, but neither is a foregone conclusion. A court that was more interested in reaching a particular policy preference could have found a route there on this argument, and I think it’s the panel’s credit that they signaled that their preferences lay in one direction and yet felt constrained, nonetheless, to uphold the order because of the deference inherent in administrative law. And I found it quite refreshing to read.
Lawrence Spiwak: George, any comments?
Dr. George Ford: Yeah, I have a few things, actually. I thought that the whole thing could have been summarized on the last page where they just say to flick the on/off switch of common carrier regulation, and then of course, they say the same thing about 706. I don’t think the FCC won anything. I mean, being first or second in this contest is the same. It could go either way, so I think, in fact, focusing on what they lost is probably more interesting. This could be reversed pretty quickly and simply, and probably will be if there’s a change in the party running the White House.
There’s a couple of things that caught my attention. One is on page 49, it appears the court to the extent Chevron deference imposes any precedent, which I’m not sure it does, the tying together of mobile and fixed classification seems to me the court basically said, “These two things ought to be classified the same,” which could come back later if we reclassify. The other one is they pretty summarily dismissed the bit torrent case and the Madison River stuff. They basically said there’s not a lot of evidence that this is a problem. And I thought that was kind of interesting.
And also, as you mentioned above, also there’s a great discussion of substitutes and compliments, one of the rare cases it’s talked about correctly in telecom policy on page 62. And then as you mentioned before, the mix and match the favorite parts of both. I mean, that’s exactly what the 2015 order did was mix and match the aggressive regulation of Title II and the relaxed regulation of Title I. I think it did it poorly and unlawfully, but that’s exactly what they did, so that was kind of weird.
I think the inconsistencies are going to continue to flow out of this as people stew on it a little bit. I’ve marked a lot of places where I thought I’m not quite sure this matches up very well with logic, and it doesn’t match up with this other thing they’re saying over here. I think that’s going to become more evident in time.
Lawrence Spiwak: Well, great. Let’s see if we have any questions from the audience.
Micah Wallen: Not seeing any question light up the lines right away, Larry. I will toss it back over to you, and I will jump back in if we have a question come through.
Lawrence Spiwak: Well, that’s always a good sign that all the answers were provided. We did such a fantastic job.
I think that you cannot help just going back, putting a lawyer’s side and then putting on the politics side. I’m not sure quite where this goes from here. I think one of the themes that we’ve all talked about today is that if there’s a change in administration, given the deference that’s involved, and as the court recognized, we can just flick the light switch, I think the elephant in the room about this, and I think you saw this when the Democrats tried to codify the rules, is that the problem with -- and I wrote a whole law review about this called “USTelecom and Its Aftermath” in the Federal Communications Law Journal. I think one of the problems with the debate though is that when the 2015 rules were litigated, the appellants made the very deliberate decision only to make a statutory argument and never challenged the actual implementation of Title II.
As a result, technically, those rules were upheld by the court if you want to call it three times, once in USTelecom, once in en banc, and then the failure to do that. So everybody’s running around saying, “Oh, these rules were upheld,” but in fact, they were never challenged. And I would submit, had they been challenged, they violate clearly the Fifth Amendment and every basic principle of rate making.
So as we are waiting for questions, where does this leave us next in the debate? We’re entering into an election year. It’s going to get to be the silly season. For some, this is actually a way to raise money. Where does this go? So I’ll leave that as our final question. Russ, let’s start with you.
Russell Hanser: Sure. So I think you’re right that the court in terms of how this progresses definitely sees this as, “Look, this is a silly thing to be going back and forth on. But if you want to keep going back and forth, we will keep looking at the cases, and we will keep deciding them as we think is correct.” The way I phrase this to some people, to some clients the other day was, “We can do this all decade,” reference to Captain America for the nerds out there. The fellow nerds out there, I should say.
Lawrence Spiwak: Nice touch, Russ. Nice touch.
Russell Hanser: Yeah, thank you. So I think they’re saying without legislation, we’ll go back and forth, and there’s going to be a lot of deference unless the Supreme Court comes in and reinterprets this provision, as two of us think it should. But we’ll keep looking at this.
In terms of legislation, I’m not a Hill person, but maybe this provides some incentive toward legislation. Democrats can get a national regime out of that, which might be appealing. Republicans can get the absence of 50 state regimes. You can have some express statutory preemption that would give the FCC what the court held it lacked this time. So maybe this tees up a legislative compromise.
On the other hand, this is, I think especially in the Democratic side, this is a campaign issue, and not sure anyone running for President wants to be affiliated with a compromise solution because we know that at least in the net roots base, compromise on this issue is kind of a dirty word. So my guess is we’re going to keep seeing the ping pong, on/off switch as administrations change, at least for the near future.
Lawrence Spiwak: Daniel?
Prof. Daniel Lyons: Yeah, unfortunately, I think that’s right. I think where the politics of net neutrality have become so toxic that particularly in an election year, finding a compromise bill that would make sense and get through Congress is probably a nonstarter, at least until after the election.
What I keep going back to is the crescendo of “sky is falling” arguments that we saw in the lead up to the inaction of the Restoring Internet Freedom Order, that the network was going to break down, and everything that was free is now going to be charged. And I think one big takeaway from -- or one big win from the Mozilla case is it allows the Restoring Internet Freedom Order to still be in effect. And the further away we get from that inaction date, from that argument, the more days we have where even without the heavy handed 2015 open internet order, everything seems to be working just fine, I think the sillier those arguments look in retrospect. And for me, that seems to undermine the politics of a more common carriage-like approach to this issue.
Lawrence Spiwak: Yeah, but don’t you kind of have a “Weebles wobble, but they don’t fall down”? I mean, Tom Wheeler just did an op-ed in the New York Times where he cited a new paper claiming—and George can talk at length on this, which I hope he does—claiming, “Ah-ha, once again we’ve dispelled the investment argument.” And it was just thoroughly debunked. I mean, George, why don’t you talk about that just really quick because we’re still going back to the net neutrality didn’t harm investment.
Dr. George Ford: Well, I think this goes back to this decision that irritated me. Or it doesn’t irritate me, I just find it intriguing is how does the Commission write about statistics in a way that clearly conveys the message to a court? And also it interests me when groups who call themselves public interest groups are willing to tell the court about evidence which has been thoroughly debunked and people are making up their data. That’s a pretty serious indictment.
And the latest piece, which is being cited broadly, and I suspect it will continue to be cited because I don’t think that people care whether it’s right or wrong, it’s just whether or not it supports their position. Chris Hooton at the Internet Association has again just completely screwed up his analysis and talks about investment, and he hasn’t measured investment at all. I mean, the variable he looks at measuring investment is like an accounts payable. So I invest a billion dollars and I pay them $800 million today and $200 million next month, and he treats the $200 million like it’s a capital expenditure when it’s really just accounts payable.
And he’s got a lot of statistical problems too, and I think that goes to the central problem and that why I’m so intrigued by this on/off switch is I don’t think -- going back to what Daniel was saying, I don’t think all the evidence in the world that nothing happened under Title I is even important. I mean, Title I and Title II is one of the rare opportunities in public policy where you can say, “I won.” It’s a dichotomy. I can say I won. I pushed for Title II. Even if I completely gut Title II of everything it can possibly do, as they argue they tried to do in the 2015 order, I can say I did it. And the dichotomy now is whether or not it’s classified as a Title I or Title II. The facts do not matter. The resulting rules do not matter. I win or lose and raise money as an advocacy organization based on whether or not the light switch is up, or the light switch is down. It’s just that simple.
Lawrence Spiwak: Well, it looks like we’ve not solved the overall problems with net neutrality debate today, but I know Russ and George both have kids about to go to college, so I guess it’s a good idea. I’d like to thank all of our panelists today, Russ Hanser from Wilkinson Barker, Professor Daniel Lyons of Boston College, George Ford at the Phoenix Center. Hope everybody enjoyed themselves, and again I appreciate everybody for tuning in today.
Micah Wallen: And on behalf of The Federalist Society, I’d like to thank all of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at email@example.com. Thank you all for joining us. We are adjourned.
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