Net Neutrality Repeal - Legal Implications

The Federal Communications Commission (FCC) has voted to reverse the net neutrality rules that determine how an Internet Service Provider (ISP) treats data and content. According to some analysts, what this means is that the ISPs will now have a green light to reduce access to websites that fail to pay up, block the ones they believe are of questionable merit, and essentially exercise a fair amount of control over how an average person wants to use the Internet.

However, this scenario shall not go unchallenged. The moment the new regulations go into effect, one can expect to see the launch of court battles that some advocacy groups are already working on. When the FCC chairman Ajit Pai announced the agency’s plans to vote for the elimination of net neutrality and released a set of draft rules, it was already quite clear that this fight is far from over, and the order will be challenged in the court.

At least in the near term, these expected lawsuits may not succeed in stopping, say, AT&T from giving faster Internet access to HBO. One cannot say with certainty that courts dealing with these lawsuits would grant an injunction to halt the implementation of the new regulations that will cause net neutrality to immediately disappear.

Having said that, the new FCC regulations do not seem to be on a strong legal footing, and they may not survive the test as cases begin to unfold in the courts. The core idea contained in the FCC’s proposal is that the Internet be treated as an information service, and not as a communications service. This change of classification will subject ISPs to less rigorous regulatory requirements.

This new approach effectively reverses what the FCC had done in 2015 by creating open Internet rules. Under those rules, the Internet was deemed to be a communications service, which is something like an essential utility, and as a consequence, subject to some consumer protection regulations.

The FCC’s new proposal is based on the argument that the communications law in the US says broadband services must be classified as an information service. Therefore, by repealing net neutrality, the FCC is simply restoring the Internet to how the law intends it to be regulated.

However, some experts are of the opinion that this view of the FCC is in conflict with an interpretation of the Supreme Court in 2005 when it ruled that it is up to the FCC to decide how the Internet should be classified – something which the FCC already did in 2015, and which now it is ready to repeal. Furthermore, this is also conflict with a recent decision of the federal circuit court that has reaffirmed the authority of the FCC to regulate the Internet.

According to observers, it seems that the FCC is hedging its bets now because their argument supporting the repealing of net neutrality appears to be significantly in conflict with the prevailing body of law on the issue. Perhaps this is the reason why the agency is also claiming that it has the power to determine how to regulate the ISPs.

The courts might be willing to give deference to the FCC on this point, but it is possible that the agency will be required to demonstrate that by changing the existing rules it is not acting in a capricious and arbitrary manner, and it may be required to present evidence that supports its analysis and its decision to change policy.

The FCC has said that the investments made by the Internet service providers in developing broadband infrastructure have reduced because of net neutrality. However, this claim does not resonate with what the ISPs have been telling their investors. Verizon, AT&T, and Comcast have all mentioned in their investor calls that after the passage of net neutrality regulations in 2015, their expenditures on building and improving their networks has only gone up, not down.

Another contentious issue where the FCC might have to face legal challenge is about the validity of the public comment process, which was a part of the net neutrality decision. The process was seriously compromised because of stolen identities, millions of submissions made by bots, and email addresses originating from Russia. The process also became a target of a cyber attack, which is presently a matter of federal investigation. Russia was trying to hurt America and was allowed to do this for many years.

The failure of the FCC to address these issues prior to its vote to repeal net neutrality has prevented it from constructively engaging with the views and comments of the people, which the agency is required to do.

There are even more concerns about that process. Under the new proposal, an ISP is only required to alert consumers about its intent to act in a non-neutral manner (such as, saying that it reserves the right to curtail access to websites), as part of its lawful duty.

However, this requirement of transparency on part of the ISP was not included in the originally proposed rules that were presented to the public to review and respond to. This is a procedural flaw in a process that is supposed to be fair and provide an opportunity to the public to give its feedback on what the agency is planning to do.

Opponents of the new rules might also argue that the old regulations of the FCC do not appear to be flawed, and the agency decision to repeal may not strictly have been made to correlate with public interest, and may have been influenced by political considerations.

The problems in the public comment process, and the potential for corruption and fraud it entailed, may not go down well with the courts. Once the complete set of new rules becomes effective, the way an average user makes use of the Internet might begin to change in both obvious and not so obvious ways.

Certain websites could have a slower download speed than others. Some services could cost more, while some others could become free. The users may have to readapt to these changes in order to maximize their advantage from the new incentives offered by ISPs.

NY Attorney General Announces Lawsuit

The highly political and controversial Eric Schneiderman, who is the New York Attorney General, who has been one of the more vocal leaders in the fight against the repealing of net neutrality regulations by the FCC, has announced one of the first legal challenges to the crucial decision of the agency.

Schneiderman has referred to his investigation into the public comments process of the commission that preceded the vote, and said that his office intends to sue to stop the “illegal” net neutrality rollback. He has also declared his intent to lead a multi-state lawsuit in this case in the coming days.

In a press release, Schneiderman said: “The FCC’s vote to rip apart net neutrality is a blow to New York consumers, and to everyone who cares about a free and open Internet. The FCC just gave Big Telecom an early Christmas present, by giving Internet service providers yet another way to put corporate profits over consumers. Today’s rollback will give ISPs new ways to control what we see, what we do, and what we say online. That’s a threat to the free exchange of ideas that’s made the Internet a valuable asset in our democratic process.”

Although it is not yet clear which other states may join New York in this legal battle, but one can make a few guesses from the list of AGs that had joined a letter seeking a postponement of the vote following the revelations around the false feedback and fake identities during the public comments process.

The letter had included 18 AGs from the states of California, North Carolina, Pennsylvania, Mississippi, Maryland, Iowa, Washington, Maine, Oregon, Vermont, Rhode Island, Delaware, Massachusetts, Virginia, Illinois, Hawaii, Kentucky, and the District of Columbia. The office of Schneiderman has stated that they expect to receive more statements from other state AGs about their intentions to join the lawsuit.

Legal challenges in the aftermath of a major FCC order are not uncommon, but their impact can be difficult to predict. Similar lawsuits had been mounted after the Open Internet Order in 2010 and Wheeler’s Title II order in 2015 by wireless and cable operators.

If the defenders of net neutrality succeed in their efforts, the court could undo and vacate the order. However, the path to such a victory is going to be long. If the fight eventually goes to the Supreme Court, the outcome could take even longer.

What would be the grounds for such a lawsuit is at present not so clear, but it is safe to assume that any challenge would seek to show the FCC’s decision as capricious and arbitrary, and not an appropriate response to the prevailing market conditions or judicial rulings. It is difficult to assess at this point how well such claims could hold ground in the court, but what is clear is that the new regulatory regime will face a tough legal fight.

Service Providers Will Test the New Rules

While the legal battle continues to gather steam in the background, the FCC’s repeal order will remain in force for now, which gives the Internet service providers a free space to handle the network traffic according to the new rules.

Armed with new powers from the FCC, the providers may choose to stifle or block some high traffic websites (such as the action of Comcast against BitTorrent a few years ago), adopt a more aggressive stance on bitrates for building mobile videos, and so on.

The service providers might also choose to act against competing services. Instances from the past include an attempt by AT&T to block an early FaceTime version, or Verizon’s action in 2011 against Google Wallet. In these particular cases, the providers were aiming to offer protection to a competing service. Mergers in the telecom sector in the recent past have led to a situation where almost every carrier has competing services to protect.

Since the last FCC regime, service providers have also built large content holdings. Verizon has taken over AOL and Yahoo, Comcast has acquired NBC Universal, and AT&T made an attempt to take over Time Warner. In case one of these giants decides to give a tough time to YouTube or Netflix, they will now have a much more freedom to do so than they did under the previous Internet establishment.

While it does stretch one’s imagination to think that a leading service such as Netflix could be openly throttled, there is a track record of brazen actions in this business. When the regulations are loosened up, it could lead to providers adopting a more aggressive approach in peering disputes (like the one that occurred between Comcast and Netflix in 2014.) With the absence of any rules against paid prioritization, any negotiations are likely to tip in the favor of the ISPs.

The Involvement of FTC

The repealing of net neutrality rules compromises vital consumer protections. However, according to the FCC, the new rules only strengthen these protections as a new agreement allows for the complaints to be passed to the FTC or Federal Trade Commission. The FTC as well as the FCC will jointly enforce transparency rules under RIFO (Restoring Internet Freedom Order). These rules require ISPs to disclose if they are blocking or throttling legal content.

As per the draft MOU, consumer complaints against the companies which violate these rules will be investigated by the FCC, and the agency will take appropriate enforcement action. On the other side, the FTC will investigate if a service provider has indulged in deceptive, unfair, or otherwise unlawful practices.

Even in the past, the FTC has been involved in regulating ISPs. For example, in 2014 it sued AT&T for its false advertising about unlimited data. The FTC could potentially apply anti-trust rules to service providers that indulge in anti-competitive practices. Some observers opine, however, that the FTC does not have sufficient teeth to act, and is likely to limit its involvement only cases of overt deception.

Everything will ultimately depend on the FTC and the FCC actually carrying out investigation/s on complaints and ensuring the enforcement of consequences. Furthermore, transparency rules only become relevant if individuals can shop around for Internet services, which is often difficult.

While the ISPs try to bring the consumers around to accepting the idea of an Internet that operates more like cable television (but you can watch all channels on cable equally right, from ESPN to Fox News to Discovery Channel?), the battle behind the scenes rages on. The last chapter in the story of net neutrality is yet to be written. This seems like a fight that is only in the 2nd inning.