Industry Court Appeal of ISP Privacy Rules Seen Highly Likely

“The privacy and security rules that we adopt are well-grounded in our statutory authority, including but not limited to Section 222” of the Communications Act, the order said. "As Public Knowledge argues, the breadth of the duty announced in Section 222(a) is consistent with a broad understanding of the purpose of Section 222. We agree that this subsection endows the Commission with a continuing responsibility to protect the privacy of customer information as telecommunications services evolve.”

In his dissent, O’Rielly disagreed with the majority’s finding that the agency has authority. “The plain language of the statute speaks in terms of telephone services,” he said. “In its effort to shoehorn broadband into this regime, the Commission is forced to ignore or explain away language that clearly contradicts its position, regulate by analogy, or simply create new obligations out of thin air.”

The FCC's decision to move the order closer to the FTC’s approach on privacy (see 1610060021) likely will help the agency prevail in court but doesn't completely inoculate it, industry officials said. A lawyer who represents ISPs said an appeal is likely. The Association of National Advertisers said a legal challenge is likely if Congress doesn’t reverse the FCC.

“When it comes down to it,” the FCC’s decision to impose the rules on ISPs “is arbitrary and capricious and runs into some substantial First Amendment issues,” the lawyer said.

A second lawyer, who represents ISPs, said the challenge could come from several directions. “Large cable ISPs seem to have lost the most in this proceeding,” the lawyer said. “They are going to be increasingly dependent on their core ISP offering as more consumers switch to over-the-top video. ISPs' ad partners are another potential set of appellants -- the FCC has taken a major chunk of their business away by subjecting de-identified individualized data to the opt-in consent requirements for the sensitive categories. Finally, the wireless carriers that do not also have a wired or fiber ISP business may be worried enough about their ability to compete against edge providers that they will want to appeal.”

“In the end, everyone but the FCC was against the privacy order, which makes the list of potential filers long,” said Roger Entner, analyst at Recon Analytics.

The FCC is on solid legal ground after the agency ruled that broadband is a common carrier service in last year’s net neutrality order, said Jeff Chester, executive director of the Center for Digital Democracy. “If the ISPs want to have all their dirty digital laundry filed in court, we are ready to help do so,” Chester said. “But it will likely also bring a political and economic backlash to their brands, something they can't afford to further jeopardize. Instead of acting as petulant children, the ad and data lobby should take their new privacy medicine.”

A legal challenge is “highly likely,” said Dallas Harris, who represents Public Knowledge on privacy issues. “Big ISPs as well as smaller ISPs and their associations will be the likely challengers,” Harris said. “I do not see the challenge as having much of a chance. The FCC’s Section 222 authority is incontestable, the first amendment arguments are weak, and reclassification was upheld. The FCC didn’t do anything that puts it on shaky legal ground.”

O’Rielly said this week that much data collection is helpful to consumers. “There may be an added nuisance factor of receiving additional, tailored ads from companies seeking to more effectively target them for sales,” O’Rielly said. “Better targeted ads and more proficient companies can serve to meet more consumer needs,” O’Rielly said. “While such advertising may help increase demand for those trying to sell the specific good or service featured in the ad materials, it also dramatically reduces the cost of products and services for consumers.” O’Rielly spoke at the Catholic University Law School Wednesday, and his remarks were posted Thursday by the FCC.