Legal Challenge to 'Internet Freedom' Draft Faces Steep Uphill Battle, Pai Backers Say

The commission has "the data, facts, and legal analysis" to back up what Pai is proposing, said Kathleen Abernathy, an ex-commissioner now at Wilkinson Barker, on a Recon Analytics call Monday, acknowledging that a legal challenge "is inevitable." Abernathy said the draft's approach creates "stability" and "provides the certainty, justification and framework" for industry to make broadband investment.

"The challenges are in a legally impossible situation," said Larry Downes, an attorney and Georgetown Center for Business and Public Policy project director, also on the call. He suggested net neutrality advocates are reaping what they sowed. The previous FCC, in defending its 2015 Title II order, argued its regulatory power was largely "unfettered," he said, and it convinced the U.S. Court of Appeals for the D.C. Circuit, twice, to grant it wide discretion under the Supreme Court's Chevron doctrine. He said the Pai FCC can use that deferential precedent to defend its plan to reclassify broadband as a "lightly regulated" Title I information service, eliminate net neutrality regulation (except a transparency rule), and rely on general FTC, DOJ and state enforcement to counter anti-consumer or anti-competitive practices.

The Pai FCC case is strengthened by the Supreme Court's decision to uphold Title I cable modem classification in the 2005 Brand X ruling, Downes said. The FCC's 2015 Title II order lacked evidence, he said, but the Pai draft has a strong case: a challenge will be "extremely weak, and ironically weak."

“The precedent is FCC discretion on classifying broadband as Title I versus Title II," said Cowen analyst Paul Gallant. "I expect that to hold."

Reversal Possible

Some net neutrality advocates think court reversal of the FCC is possible.

"Generally speaking, the government always has an advantage, so I certainly wouldn't say that this is definitely going to be reversed," emailed Andrew Schwartzman, Georgetown Law Institute for Public Representation senior counselor. "However, I am surprised at the flaws in the draft order, and I think there is a better than usual chance of reversal. Chevron deference is not unlimited, and the FCC needs to explain why it changed its mind. It also needs to explain what changed in just two years."

Free Press Policy Director Matt Wood believes a challenge can win. "Giving odds is textbook legal malpractice," but "we of course still think we have a strong case," he emailed. Abernathy "is wrong to think there is solid data in this order," he said. "The investment data on which it relies, in particular, is something that bears no scrutiny at all." Chevron deference is "not a blank check," with the FCC still forced to justify its actions "and the facts are on our side there too," he said. "The thing that the pro-Pai and pro-cable pundits want to ignore in all of this is the nationwide backlash against the laughable notion of cable and phone companies policing their own discriminatory practices in front of an FTC with no power to prevent those practices."

"The more important question is whether Congress steps in or the Supreme Court uses one of these net neutrality cases to reverse Chevron,” Gallant told us (see 1711270054 on legislative prospects). Without legislation, the FCC order "only assures non-regulation of broadband through 2020" due to the possibility of a Democratic presidential victory and agency takeover, he wrote investors last week.

For now, analysts called Pai's draft a clear victory for ISPs. "Less broadband regulation can only be good for cable/telcos," said Gallant's note, suggesting FTC enforcement would have less force than FCC regulation. "Given the carriers' repeated statements that they will not block/throttle/prioritize, we believe these aspects of the old rules will be voluntarily maintained, but we do expect paid prioritization products to emerge, driving incremental carrier revenue potential," Raymond James' Frank Louthan wrote investors. "We see some modest upside for paid prioritization, but that will largely be on the wireless side and as a practical matter, wireless has already been doing that (through 'zero rating' programs)," said a New Street Research note.

Net Neutrality Notebook

The author of California ISP privacy legislation slammed the FCC net neutrality draft that would pre-empt state broadband regulation including privacy rules (see 1711240028). Assemblymember Ed Chau (D) failed to pass the bill this year but is expected to revive it in January (see 1711210041). “Reversing Title II protection for internet access without adequate protections against throttling or other types of unfair business practices is a recipe for disaster,” Chau said. “If approved, this action will stifle innovation, reduce competition, and ultimately cost consumers more money.” Proposed pre-emption of state and local consumer protection laws makes the FCC plan worse, he said: “If we really want to protect internet freedom, the FCC should abandon this dash off the deregulatory cliff and maintain net neutrality and state autonomy as cornerstones of 21st century internet policy.”

A variety of parties are defending Pai in the face of personal attacks the FCC chairman faced for the draft net neutrality order. And Pai in a statement Monday said, “Internet regulation activists have crossed the line by threatening and harassing my family. They should leave my family out of this and focus on debating the merits." "The repeated racist attacks" against Pai and his family over the holiday weekend "are horrific," Tech Knowledge said Monday. Rather than advocacy, "they are terrorism," it said. The Institute for Policy Innovation said "threats against the homes and children of federal officials implementing policy are far out-of-bounds and should be condemned." It requested an FBI investigation and prosecution "as a deterrent to those who can’t separate rhetoric from reality and might be inclined to actually carry out such threats." The FBI didn't comment. Taxpayers Protection Alliance, pointing to threats and personal attacks on sites such as Twitter and reddit, said Monday the comments "do nothing to advance the discourse relating to net neutrality and Title II" and chided activists "who typically stand up against these racist, personal claims" for not decrying them. FCC Chief of Staff Matthew Berry last week on Twitter called a variety of personal attacks on Pai racist or homophobic (see here, here and here). The Daily Caller Saturday reported activists recently left signs outside Pai's home addressed to his children and accusing the chairman of having "murdered democracy." Former Commissioner Michael Copps, a Democrat, tweeted Saturday that while he and Pai "have our differences ... racism and xenophobia are never in the public interest." "Those on the Left who still oppose racism and bigotry should call out and denounce the cowards" behind the invective, the American Conservative Union said Monday. "To those who are turning a blind eye, you should hang your heads in shame."

Free State Foundation President Randolph May took issue with process criticism, including in a Washington Post Friday article citing "a mounting backlash from agency critics" over "what they say are thousands of fake or automated comments submitted to the FCC," with New York Attorney General Eric Schneiderman alleging the process was "corrupted by the fraudulent use of American identities." "Get real," blogged May Monday, saying the vast majority of 22 million comments were "computer-generated" forms. "The rulemaking process is not a plebiscite. If Attorney General Schneiderman and others want to continue to focus on the 'count' of computer-generated comments that may be their prerogative." The "diversionary tactic" says "quite a lot about their lack of confidence in the substantive arguments," he said.