FCC Commissioners Say Net Neutrality Order Appeal Could Succeed

Copps and Clyburn had been vocal supporters of a Title II approach to net neutrality but agreed to support Chairman Julius Genachowski last month. Part of Genachowski’s pitch to the commissioners and the public was that the neutrality order would be less likely to provoke -- and more likely to survive -- a court challenge. “I would vote like I did,” Copps said. Clyburn told us she had “no regrets” on her vote. She said she was still reading Verizon’s brief but said, “I have confidence in our general counsel.”

Republican Commissioner Meredith Baker, who voted against the order, said she wasn’t surprised by Verizon’s challenge. She said she expected lots more litigants -- “left and right” -- to intervene in the case in courts around the country.

"I have made no secret of my view that the FCC’s Dec. 21st net neutrality order stands on a very infirm legal footing,” said Commissioner Robert McDowell, who also spoke Friday. “I think there’s a better-than-average chance the order will be stayed."

Verizon asked in a second filing with the Court of Appeals for the D.C. Circuit that the same panel that heard the Comcast case be assigned to hear Verizon’s appeal. Verizon is represented by Helgi Walker, a former FCC staffer now at Wiley Rein, who represented Comcast on its successful challenge of the FCC rules. Walker was a clerk to Supreme Court Justice Clarence Thomas and chief of staff to former Commissioner Harold Furchtgott-Roth.

Many questions remain about whether other parties will either file challenges of their own or file in support of Verizon, industry sources said Friday. Most likely will wait for publication of the order in the Federal Register. “I don’t think it’s a matter of if, it’s a matter of when” other appeals will be filed, said a wireless industry attorney. “The stakes are high for both sides."

"This may simply be a matter of jurisdiction shopping,” said Craig Moffett of Sanford Bernstein. “It’s not a coincidence that Verizon appealed to the D.C. Circuit. The D.C. Circuit is likely to be the most favorable venue for opponents of the order. After all, it was the D.C. Circuit that shot down the FCC’s Title I authority in the first place. Supporters of the order, and those who think the order is too lenient, would prefer to have it heard in the Ninth Circuit, where the FCC would probably stand a better chance."

Paul Gallant, analyst with MF Global, expects other appeals to be filed. “Other carriers are probably going to link arms with Verizon on this in the coming weeks,” he said. “Public interest has its own concerns, but they probably don’t want Title I authority blown up, so they'll come at it from a different angle in the different court."

"It wouldn’t be surprising if other entities also challenge the FCC’s new net neutrality rules, but because Verizon has taken the lead it is possible that any parties that have been contemplating appeals will simply join in support of Verizon’s suit,” said Jeff Silva, analyst at Medley Global Advisors. “Having said that, participation in litigation by other broadband operators -- via separate appeals or as intervenors in support of Verizon -- could be tricky in light of their roles in helping craft compromise open Internet rules and [in light of] pending, or just completed, business they have at the FCC."

Stifel Nicolaus noted that Verizon is arguing that Section 402(b) of the Communications Act gives that D.C. court exclusive jurisdiction over certain appeals, “including when a party challenges an FCC decision modifying the party’s licenses.” That argument could provide additional weight to hearing the case in that court, Stifel said. “If the lottery system is triggered and another court is assigned the appeal, there could be a conflict if the D.C. Circuit asserts jurisdiction over the case, though we would expect Verizon would ask the other court to send the case back to the D.C. Circuit,” the firm said. “Whether the other court would transfer the case to the D.C. Circuit is, again, up to that court’s discretion, but the 402(b) mechanism would give Verizon another argument for doing so."

Bingham telecom law partner Andrew Lipman noted that Verizon is also arguing that its appeal is ancillary to the Comcast decision, which if successful would give the company the same three-judge panel that issued the Comcast decision, Lipman said. That surely means that public interest groups will file separate appeals in other circuits “expressly to try and trigger a lottery,” Lipman said. “It'll be an interesting battle once that lottery is put in place,” Lipman said.

"It’s a creative argument,” Lipman told us of Verizon’s 402(b) approach. “I'm not sure that it’s ultimately going to be persuasive. It’s another brick in the wall if Verizon seeks to move the case back to the D.C. Circuit.” But Lipman said he thinks the FCC has better standing with its newest order than it did when it went into court with the Comcast case. Former Obama administration broadband adviser and communications law professor Susan Crawford agreed that Verizon’s “jurisdictional argument is a stretch” but the company “has to do what it needs to do to protect its wireless business.” “If it feels that the order is too far away from the deal they made with Google, they have no choice but to go to court,” Crawford said. “Verizon wants to open the right courthouse door to get the conclusion they want. You can call that forum shopping."

Whatever happens with the Verizon challenge, it’s all part of a long process that will help the commission understand its vital role in protecting the open Internet, Level 3 Chief Legal Officer John Ryan told us. Level 3 has become an improbable champion of net neutrality thanks to its public dispute with Comcast (CD Jan 18 p4). Ryan said he believes that, for all practical purposes, the battle over net neutrality will be fought directly between Internet service providers and edge content providers. “I don’t view the open Internet order as an event so much as a process where the commission is going to understand more and more the challenge points of what we call the Internet,” Ryan said.

While Verizon’s decision to appeal the FCC’s order is puzzling to Ryan -- “I'm having trouble holding in my brain at the same time Verizon’s deal with Google last summer and Verizon’s challenge to the open Internet order,” -- he said “someone was going to challenge it.” Level 3 will certainly consider intervening in an appeal to defend the FCC’s order, but such talk is “really premature,” Ryan said.

In the long run, though, it will be difficult to keep the FCC out of the Internet, Ryan said. “If Verizon is correct that there’s no jurisdiction for the FCC to enter the open Internet order, you have the ironic outcome of the Federal Communications Commission having effectively little or no jurisdiction over the most important communications system of the current century,” Ryan said. “Look, the FCC has been regulating the Internet for some time now. VoIP 911 obligations -- that’s regulating an Internet service. We don’t need to get wrapped around the sound bites to understand that what we really need to ask is what government’s role is in keeping this vital communications service open."

Verizon’s filing represents a “belt and suspenders approach,” an FCC official said. It may face some hurdles, particularly with the telco’s request for the case to not only be heard by the D.C. Circuit but to be heard by the same three-judge panel that ruled on Comcast in April, said some communications lawyers and law professors not involved in the case but who followed the FCC net neutrality proceeding. The D.C. court “is the appropriate place to hear the appeal,” said telecom lawyer Martin Stern of K&L Gates. “I would not understand the basis for asserting that the D.C. Circuit is the exclusive circuit where it can be heard.” What the FCC called a rulemaking proceeding in the net neutrality order “just doesn’t make sense” for Verizon to call a license issue and therefore one that only the D.C. Circuit can hear, since it has sole authority over license transfer appeals, Stern said.

Verizon’s appeal generally “makes a lot of sense in terms of judicial economy and efficiency,” said lawyer Paul Feldman of Fletcher Heald, whose clients include telcos. “The D.C. Circuit and particularly the Comcast panel are very well versed in the subject matter and issues in this appeal, more so than any other court at this point.” And it’s “obvious” that last month’s FCC net neutrality order “is a direct response” to the D.C. Circuit’s Comcast decision, Feldman added.

Picking that court to review the net neutrality order “is creative,” but Verizon’s “attempt to jump the gun on publication in the Federal Register will fail because its reading of ‘modified’ in Section 402(b)(5) is simply too broad,” said Professor Jim Tuthill of the University of California at Berkeley. He couldn’t remember any recent rulemaking appealed before it appeared in the Federal Register, and “the very nature of the FCC’s order here is a rulemaking.” If indeed the D.C. Circuit does hear Verizon v. FCC, the plaintiff’s request to be assigned the same judges as in Comcast is “persuasive,” Tuthill said. Verizon’s motion to that end “reflects a clever idea,” said Professor Brad Bernthal of the University of Colorado. “But it is a long-shot legal argument."

Top Commerce Committee Democrats on the Hill condemned the lawsuit. “Verizon has the legal right to do this, but we are disappointed that they filed suit,” said Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., and House Commerce Committee Ranking Member Henry Waxman, D-Calif. “We support the FCC’s efforts because they will protect consumers and provide companies with the certainty they need to make investments in our growing digital economy."

The suit was taken as a rallying call by some Hill Republicans. Rep. Mary Bono Mack, R-Calif., chair of House Commerce’s Manufacturing Subcommittee, pledged Friday to “do everything possible to stop [the FCC’s] effort dead in its tracks.” Full Committee Chairman Fred Upton, R-Mich., has said before that Mack’s subcommittee may hold one of a planned series of hearings on net neutrality” (CD Dec 22 p5) .

"The FCC is wrong in assuming they have the authority to regulate the Internet and Verizon is right to challenge that assumption in court,” said Rep. Joe Barton, R-Texas. “If the government interferes and starts regulating the internet it will only stifle innovation. I will work with Chairman Upton … to hold hearings and quickly move a bill, explicitly defining the authority of the FCC."

Rep. Anna Eshoo, D-Calif., said she was “disappointed,” but not surprised. “As I've previously indicated, the FCC’s decisions left the door open for many legal challenges, and this is but the first,” she said. “Any stakeholder has a right to oppose the FCC’s order, but I think it’s a mistake to do so,” said Sen. John Kerry, D-Mass. “The FCC spent months crafting a centrist, pragmatic, compromise rule that protects the interests of both consumers and innovators.”

Free State Foundation President Randolph May welcomed the appeal. “The FCC’s assertion of authority in this case raises important rule of law issues, both statutory and constitutional,” May said. “My hope is that Verizon can get the court to consider the lawfulness of the FCC’s action sooner rather than later so that the uncertainty hanging over Internet providers will be resolved.”