Thursday, April 8, 2010

Court Orders FCC to Cease Exceeding its Statutory Authority

The decision may upset some big plans the FCC has for us

On April 6, 2010, a three judge panel of the Federal Court of Appeals for the District of Columbia Circuit held unanimously in Comcast Corporation v. FCC that the Federal Communications Commission (FCC) had over-stepped its statutory authority by attempting to regulate aspects of cable internet service not contemplated by statute. It has been suggested by an article in Cnet News that
Tuesday's decision could doom one of the signature initiatives of FCC Chairman Julius Genachowski, a Democrat. Last October, Genachowski announced plans to begin drafting a formal set of Net neutrality rules--even though Congress has not given the agency permission to begin.
It has also been suggested here that
The decision also has serious implications for the massive national broadband plan released by the FCC last month. The FCC needs clear authority to regulate broadband in order to push ahead with some its key recommendations, including a proposal to expand broadband by tapping the federal fund that subsidizes telephone service in poor and rural communities.
Probably so. Others have speculated that there may be additional impacts on communications, which is of course possible. On April 8th the FCC nevertheless announced that it plans to move ahead on its broadband initiative "soon."
The FCC laid out its 2010 "broadband action agenda" without indicating how it will proceed in light of the court ruling. But the agency says it will ensure it has the legal authority it needs for its sweeping plan to increase broadband usage and Internet speeds.
Be that as it may, the Comcast decision itself will probably have little direct immediate impact on most of us any time soon, although it has some neat procedural twists and turns of the sort likely to tickle the fancies of attorneys. It also portends trouble for other currently hyperactive administrative agencies

A bit of background on the communications industry may be in order. As an attorney in private practice in Washington, D.C. from 1972 till 1996, I represented television stations across the country in their battles with the cable industry from the early 1970's until the Congress in 1984 essentially deregulated cable and left it up to local governments to regulate the rates charged cable customers. The full blown notion of net neutrality had not emerged while I was practicing law, so this article merely addresses some of the history of FCC regulation. Others are in a better position to speak of net neutrality and its potential impact on nearly all of us. Here is one such analysis, which I think makes well the point that regulation has its good and bad points; it is difficult to have one without the other.

When the industry was in its infancy, before I was born, there were radio stations which broadcast AM signals (FM came later) capable of being received at no charge by anyone with an appropriate receiver. Such radio stations were not common carriers, and had very different obligations than those imposed on common carriers, telephone companies, which made their services available by physical wires to customers who paid for the service. The various telephone companies were interconnected, also generally by physical wires, making long distance calls possible. The Communications Act of 1934 created the FCC, which was intended to deal with these quite different beasts.

Over the years, technology changed dramatically and the Communications Act was amended from time to time to take into account some but not all of the important changes. However, in some cases the technology changed too rapidly for statutory changes to keep pace. Consequently, the FCC tried to use its existing regulatory power to fill the void. Sometimes it did so wisely and sometimes not.

Although the first cable television systems were started in the 1940's, the industry advanced slowly until the 1970's, principally at first in places where over-the-air reception of television stations was difficult or impossible. Community Antenna Television Service (CATV) operators used more sophisticated and expensive receiving equipment than was feasible for individual households and delivered otherwise unavailable or marginal TV signals by wire to their subscribers. Although subscribers paid the CATV systems for this service, the CATV systems did not pay television stations for the "piracy" of their programming. As CATV became widespread, many broadcasters began to consider CATV an enemy and sought to have it regulated by the FCC. The catch phrase of the period was
it has long been known to thieves that if you can get something for nothing and then sell it, you can make a neat profit.
This may have been somewhat unfair, since CATV operators had their own costs of operation; however, it also made sense because when a CATV operator imported unlimited distant TV stations instead of or in addition to local stations, and/or substituted its own commercials for those broadcast by local TV stations, the audiences of the local stations were fragmented. Advertisers did not get the expected value for their money and the revenues of local stations dropped. Since the FCC had a statutory responsibility to foster local broadcasting, and since broadcast stations were required to broadcast some generally non-remunerative programming ("public affairs," which with the demise of the Fairness Doctrine morphed into profitable talk radio and its television counterpart) and otherwise to operate in the public interest, it was feared that the FCC could not meet its statutory responsibility and that public interest would thereby suffer. The FCC ultimately agreed and adopted "must carry" rules, "network non-duplication" rules and rules limiting the numbers of distant stations CATV operators could make available and the conditions under which they could do so.

In United States v. Southwestern Cable Co., 392 U.S. 157 (1968), as relied upon in many subsequent cases, the Supreme Court held that despite the absence of any specific statutory authority to regulate the CATV industry, the regulations in question were within the ancillary authority of the FCC because the FCC (a) had statutory authority to regulate television stations and (b) had demonstrated that the limited regulations imposed on the CATV industry were necessary in furtherance of its obligation to keep broadcast stations healthy so that it could regulate them "in the public interest." The FCC was required to meet both parts (a) and (b) of the test. As time marched on, CATV mutated into its present form, making substantial non-broadcast content available to subscribers, often at premium prices. The CATV industry was largely deregulated by the Congress in 1984, leaving rate regulation to be undertaken locally.

Under the Communications Act, the Court of Appeals for the D.C. Circuit has exclusive jurisdiction to entertain appeals from most FCC decisions as well as the decisions of most other federal administrative agencies. The process obviates intermediate proceedings at the Federal District Court level and decisions by the D.C. Circuit are appealed to the Supreme Court. Nearly always, acceptance of such appeals is discretionary with the Supreme Court through the certiorari process. Very few petitions for grant of a writ of certiorari are granted.

In Comcast Corporation v. FCC, decided on April 6, 2010, the D.C. Circuit held that the FCC had gone too far in attempting to regulate the cable internet services provided by Comcast. It rejected the FCC's argument that statements of Congressional policy as expressed in the Communications Act and elsewhere, in and of themselves, granted far reaching regulatory authority. That
policy statements alone cannot provide the basis for the Commission’s exercise of ancillary authority derives from the “axiomatic” principle that “administrative agencies may [act] only pursuant to authority delegated to them by Congress.” . . . Policy statements are just that—statements of policy. They are not delegations of regulatory authority. To be sure, statements of congressional policy can help delineate the contours of statutory authority. . . . When exercising its Title II authority to set “just and reasonable” rates for phone service, . . . , or its Title III authority to grant broadcasting licenses in the “public convenience, interest, or necessity,” . . . , or its Title VI authority to prohibit “unfair methods of competition” by cable operators that limit consumer access to certain types of television programming, . . . , the Commission must bear in mind section 1’s objective of “Nation-wide . . . wire and radio communication service . . . at reasonable charges,”. . . . In all three examples, section 1’s policy goal undoubtedly illuminates the scope of the “authority delegated to [the Commission] by Congress,” . . . — though it is Titles II, III, and VI that do the delegating. So too with respect to the Commission’s section 4(i) ancillary authority. Although policy statements may illuminate that authority, it is Title II, III, or VI to which the authority must ultimately be ancillary. (internal citations omitted)
As the court observed, the FCC did not argue
that its regulation of an activity over which it concededly has no express statutory authority (here Comcast’s Internet management practices) is necessary to further its regulation of activities over which it does have express statutory authority (here, for example, Comcast’s management of its Title VI cable services). (emphasis added)
Rather, the FCC argued that it had all the authority it needed by virtue of Congressional expressions of policy. The D.C. Circuit disagreed, stating that the FCC's position was not only inconsistent with judicial precedent but that "if accepted it would virtually free the Commission from its congressional tether," opening the door for the FCC to do pretty much anything that pleased it.

The final paragraph of the decision should give the FCC and other now hyperactive administrative agencies some pause:
It is true that “Congress gave the [Commission] broad and adaptable jurisdiction so that it can keep pace with rapidly evolving communications technologies.” . . . . It is also true that “[t]he Internet is such a technology,” indeed, “arguably the most important innovation in communications in a generation,” Yet notwithstanding the “difficult regulatory problem of rapid technological change” posed by the communications industry, “the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer . . . Commission authority.” Because the Commission has failed to tie its assertion of ancillary authority over Comcast’s Internet service to any “statutorily mandated responsibility,” we grant the petition for review and vacate the Order.
The caution against impermissible agency intrusions to deal with rapid technological advances which the Congress has not got around to regulating should apply with even greater emphasis to impermissible agency intrusions into areas into which the Congress has been pressed by the current administration to intrude but has thus far declined the invitation.

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