Debating Daniel Deacon on Title II Reclassification

by Gus Hurwitz — Wednesday, Feb. 11, 2015

Daniel Deacon’s recent Notice & Comment post does a nice job of laying out the legal basis that will likely be used by FCC Chairman Wheeler’s proposed Open Internet (a/k/a net neutrality) rules. And his analysis of this legal basis reflects conventional wisdom. He is right that it is reasonably likely that the courts will uphold the Chairman’s proposed reclassification of broadband Internet access services as telecommunications services subject to Title II of the Communications Act. After all, in Brand-X, all nine Justices clearly though such a classifications was reasonable; Fox v. FCC supports the Commission’s ability to change its prior classification; and City of Arlington more recently reaffirmed the broad deference that the Commission is likely to receive. Importantly, each of these cases – three of the most important administrative law cases in recent years – involve the FCC and are institutionally familiar to the agency.

The primary challenge that the Commission is likely to face, however, is not over reclassification or the substance of its rules (which is not to say there aren’t legitimate challenges to these – I return to this briefly at the end of this post). It will be over whether the Communications Act gives the Commission regulatory authority over Internet access. This is a much harder case for the FCC to make. Importantly – and this is why I believe proponents of the Chairman’s plan are over-confident – this question ties into broader themes in the Court’s recent administrative law jurisprudence. While the Court’s recent Chevron cases clearly give the Commission broad discretion, I expect that City of Arlington will prove to have been the high water mark – and that last term’s Utility Air Regulatory Group marks a powerful turning of the tide against jurisdictional claims such as those made by the Chairman’s proposal.

Based on what is known about his plans, Chairman Wheeler is not merely proposing to regulate telecommunications carriers – historically those companies offering a service that allows one person to exchange information with another on a person-to-person basis. He is proposing to regulate what he has called on several recent occasions “the most powerful network in the history of mankind.” As the first sentences of last May’s NPRM tell us, “The Internet is America’s most important platform for economic growth, innovation, competition, [and] free expression … [It] has been, and remains to date, the preeminent 21st century engine for innovation and the economic and social benefits that follow.”

The telephone network, which Title II of the Communications Act was designed to regulate, is an important social and economic tool. But it is not the most important platform for economic growth, innovation, competition, and free expression; it is not the engine that drives these central parts of our society; it is not “the most powerful network in the history of mankind.” It is not now, nor has it ever been, any of these things.

And the telephone network is a much simpler network than the Internet. Title II was designed to give the FCC the tools to regulate literally many dozen companies, almost all of which had very similar and very static businesses, both operationally and in terms of physical plant, and that served customers with relatively homogenous needs. Today there are literally thousands of Internet service providers that the Chairman’s plan would newly subject to Title II regulation – companies of dramatically different size and levels of sophistication, with different business models and operational requirements, using dramatically different technologies to provide service to customers with vastly different needs and expectations, and doing so on networks that rapidly change in terms of technology, physical design, and commercial agreements.

Title II was simply – and inarguably – not designed to operate in such an environment. The Chairman is aware of this. He proposes addressing this concern by “taking the legal construct used for phone companies and paring it back to modernize it,” thereby “modernizing Title II, tailoring it for the 21st century.” He has been very explicit that he does not plan to apply Title II – he plans to create a “modernized version of Title II.”

With these pieces on the board, we can turn to the law. As Daniel explains, the agency will be given very broad deference in developing its rules. But that deference is not unlimited. The key case, which most commentators are unaware of, is last term’s Utility Air Regulatory Group (UARG). In UARG, the EPA reclassified (to use the telecom-relevant term) greenhouse gasses to fall within the ambit of several statutes that it enforces, and in so doing, it dramatically increased the permitting requirements for point sources of air pollutants. Complying with these requirements would have placed excessive burdens on both the EPA and the parties that it regulates. In order to mitigate these burdens, the EPA adopted a “tailoring rule,” which dramatically curtailed application of the statutorily-required permitting requirements.

Justice Scalia, writing for the Court, rejected this approach. Starting with City of Arlington v. FCC – a key recent precedent supporting broad deference for the FCC – he reminds us that “Even underChevron‘s deferential framework, agencies must operate ‘within the bounds of reasonable interpretation.’” He goes on to explain that

The fact that EPA’s [approach] would place plainly excessive demands on limited governmental resources is alone a good reason for rejecting it; but that is not the only reason. EPA’s interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization. … We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast “economic and political significance.”

This maps well on to the Chairman’s proposed regulations. Absent forbearance – which we turn to in a moment – there is no way that the Commission could apply Title II in full. This would require, for instance, the Commission to examine every transaction entered into by any ISP that “relate[s] to the furnishing of equipment, supplies, research, services, finances, credit, or personnel to such carrier and/or which may affect the changes made or to be made and/or the services rendered or to be rendered by such carrier.”

As Justice Scalia says, this “is alone a good reason for rejecting” the Chairman’s proposal. But, even more problematic, the Chairman’s proposal would place the FCC in charge of “the most powerful network in the history of mankind;” the most important platform for economic, growth, innovation, and free expression that the world has ever known; the engine that drives central parts of our society. Justice Scalia and the Court expect – as should we all – that Congress speak “speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Congress gave the Commission authority over telephone companies; it did not give the Commission authority over the beating heart of our national economy.

The response that the proponents of the Chairman’s proposal offer – that the Commission will forbear from applying Title II in full, instead hewing out a “modernized” version of the statute – is unsatisfactory. Again Justice Scalia, in rejecting the EPA’s tailoring rule: “We reaffirm the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate. … Instead, the need to rewrite clear provisions of the statute should have alerted EPA that it had taken a wrong interpretive turn.”

This brings us to a final concern about the Chairman’s proposed order, which again demonstrates its proponents’ failure to appreciate its broader jurisprudential setting in which challenges to the proposed rules will arise: the serious separation of powers concerns raised by the Chairman’s approach. Again by analogy to UARG, Justice Scalia expresses concern that “Were we to recognize the authority claimed by EPA in the Tailoring Rule, we would deal a severe blow to the Constitution’s separation of powers.” Recognizing the Chairman’s broad claim of authority would deal a similar blow. Yesterday, David Post expressed similar concern in a post (How ‘net neutrality’ became a separation of powers story) in which he argues that “The FCC is soft-pedaling what is undeniable: once reclassification occurs, the range of regulatory actions that the FCC could take broadens considerably.” Such an expansion of authority needs to be granted by Congress, not claimed by the Executive or and agency; and no amount of forbearance can cure this flaw.

Separation of powers concerns will be exacerbated by the totality of the Commission’s ongoing efforts relating to broadband regulation. Chairman Wheeler has recently explained, “the FCC is in the midst of three historic decisions” relating to broadband. All three of these efforts are based in very aggressive legal and policy positions. The Open Internet regulations will at minimum skirt the line of being arbitrary and capricious – there are substantial economic and technical literatures that consistently find the sorts of conduct the Commission is likely to ban outright can under many circumstances be beneficial to consumers. There are also concerns that reclassification is pretextual, based in the desire to achieve certain ends as opposed to sound legal analysis. And there are concerns that it has been influenced by improper political considerations. While it is not inappropriate for the President to urge an independent agency to reach a certain outcome, it is inappropriate for the agency to consider Executive input beyond what it allowed by its ordinary process – as I am fond of saying, “consideration of a President’s legacy” is not a permitted factor under State Farm. Beyond the proposed Open Internet rules, the Commission’s expected efforts to pre-empt state broadband regulations are contrary to – though the Commission will argue distinguishable from – recent Supreme Court precedent. And the Commission’s recent redefinition of what is considers “broadband” is based on reports riddled with legal infirmities. Not least of these infirmities are that the reports expressly find that the Commission is legally required to consider certain factors that the Commission then goes on to expressly not consider, and that the Commission fails to consider contrary data contained in its own contemporaneous reports. The Commission may prevail on legal challenges to any one, or even all, of these issues taken individually. But taken as a whole they paint an alarming picture of the Commission – a picture that speaks directly to the Court’s likely separation of powers concerns.

This is the real risk that the Chairman’s proposal faces – and why I do not expect that it will ultimately fare well in the courts. This is not a case about statutory interpretation. It is a separation of powers case – one that will be heard in a setting of substantial concern about Executive and agency overreach – one that features an agency that is asserting authority over “the most powerful network in the history of mankind,” without clear Congressional authority, based on highly technical readings of statutes meant to apply to last century’s technology and that were last revised to with the clear intent of weaning those networks from the Commission’s control. The courts will quite appropriately be skeptical of such Chairman’s assertions.

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