Cabining FCC Jurisdiction to avoid Mission Creep

by Gus Hurwitz — Saturday, July 11, 2015

Daniel Deacon’s recent post and his essay in the Administrative Law Review raise several interesting – and potentially concerning, which is not to say wrong – points. Importantly, even though the vagaries of publication mean that his essay focuses on the FCC’s use of Section 706 to implement its Open Internet rules, whereas the FCC now relies primarily on its authority under Title II of the Communications Act, Daniel’s discussion remains relevant. As is often the case, Daniel and I agree on a lot and disagree on a lot. I think this is a case where we agree on a lot – but I want to discuss some concerns about the potential scope of the common-law approach he forecasts.

I want to focus my discussion on his second point – the as-applied meaning of common carriage. But first I want to agree, emphatically, with his first point, that “The scope of the FCC’s authority under section 706 is potentially shockingly broad.” As he says, while the focus of the FCC’s rules is purportedly broadband ISPs, the scope of authority claimed will undoubtedly expand. Indeed, it already has: the FCC has held a workshop on its power to regulate privacy under its rules. Its Order contemplates regulating interconnection agreements – moving the focus of the Order from broadband ISPs deeper into the network core. And we various parties have already begun clamoring for, as Daniel notes, search neutrality. Beyond the Section 706 concern, by classifying broadband Internet access as a Title II service, the FTC is now statutorily barred from using its own consumer protection authority – the FCC is almost certainly going to step in to fill the void that it has created.

But the problem is even more substantial, and cuts to what will be one of the basic arguments in the pending legal challenges to the FCC’s Order: while the Commission’s ostensible purpose is to regulate broadband ISPs, the greater effect of its rules, and arguably their primary purpose, is to regulate the applications that run over the Internet (that is, “edge” applications). Indeed, as I recently wrote, the Commission’s focus on edge applications could cause the courts to reject the Commission’s basic legal theory – the so-called “virtuous cycle.” Under this theory, the Commission believes that it can stimulate broadband investment (its statutory mandate) by stimulating consumer demand for services that require advanced broadband facilities; and that it can stimulate consumer demand by facilitating the development of new applications. In other words, the Open Internet Order is as much about the development of applications at the edge as it is about the development of broadband ISP infrastructure – but the Commission only has legal authority over one of these things.

These aspects of Daniel’s first point – and about creeping jurisdiction under Section 706 (as well as under Title II) – are important, but also reasonably well understood. Daniel’s second point, raises one issue – the rules vs. standards debate – that has not been well understood in debates about net neutrality, and it frames another issue – the common-law nature of potential net neutrality adjudication – in novel terms.

I have written extensively on the need to think about net neutrality in terms of rules vs. standards – and have argued that this is a clear-cut, very traditional, case where standards are preferable to rules. In fact, this is basically the approach the DC Circuit told the FCC to take in Verizon, where it rejected the FCC’s prior approach for having adopted bright-line (common-carrier like) rules. This is the approach that the Commission was embracing in its May 2014 NPRM before advocacy groups undertook a massive media campaign (prompted by a leak from the Chairman’s office) that directly and repeatedly targeted FCC Chairman Wheeler. And even then it was basically the approach that the Commission was set upon until President Obama intervened by posting a video to Youtube that forcefully called upon Chairman Wheeler to adopt a Title II-based (and rule-like) approach.

Standards-based approaches typically go hand-in-hand with adjudication-based enforcement mechanisms; and adjudication-based enforcement is often viewed as similar to common-law-based enforcement. This is the basic move that Daniel makes, where he discusses the “emerging common law of Internet regulation.” (Which is, in fact, part of the title of Daniel’s Admin Law Review essay.) This framing is reasonably novel in the context of net neutrality (though, as he discusses in his essay, the common-law approach to common carriage has been developed over many years). I want to offer some cautionary discussion of the limits of the common-law approach.

Daniel follows a recent trend of scholars calling for administrative agencies to use adjudication to develop various “common laws of [xyz].” I express concern about this trend in a forthcoming article in the Iowa Law Review, Data Security and the FTC’s UnCommon Law. The basic critique is that agency-based adjudication lacks many of the necessary virtues of the common law – for instance, a sufficient number of cases argued by adverse parties before a neutral tribunal subject to standing requirements. Under the common-law model, parties generally bring marginal cases before a judge who is forced to decide them because she must; the parties generally settle the non-marginal cases because the law is clear. Under the agency-adjudication model, agencies generally select (non-marginal) cases to bring before an agency-tribunal for the purpose of developing rules; the agency generally doesn’t expend resources on marginal cases.

This critique of agency-based “common laws of [xyz],” however, applies primarily to agencies that regulate a large number of actors – for instance, the FTC’s efforts to regulate data security standards used by firms nationwide. Where an agency, instead, regulates a relatively small number of well-heeled sophisticated parties, the calculus is different. The traditional telecommunications industry, for instance, comprises a small number of sophisticated parties capable to taking action against FCC abuses of adjudication.

Daniel’s suggestion of a Section 706-based approach is therefore quite sound – but only to the extent that the scope of the Commission’s regulation is focused. To the extent that the Commission’s jurisdiction sprawls to encompass the broader Internet ecosystem, the calculus changes. The standards-based approach is still preferable to a rules-based alternative. But, as I argue in my forthcoming article, the common-law-based approach raises serious due process concerns – too many parties potentially subject to regulation lack the sophistication necessary to understand regulatory expectations, and too few have the resources necessary to meaningfully protect themselves against agency abuses of adjudication. Unsurprisingly, this raises serious due process concerns.

Rather, the better approach is for agencies in such a position to adopt an approach first articulated decades ago by KC Davis, using common-law-like adjudication to shape evolving standards, but doing so in a non-punitive way. This, I believe, is in line with what Daniel proposes, only offering an outer boundary to his thinking. Unfortunately, it seems unlikely this is the approach the FCC will take. Rather, it has embraced both strong rules – and, under Chairman Wheeler, we have seen an unprecedented embrace of punitive actions (agency fines under Chairman Wheeler have increased from an average of a few tens of millions of dollars per year since 2000 to several hundred millions of dollars over the past two years).

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