The Problems With Henry Waxman’s “Hybrid” Legal Theory…

Posted By Larry Spiwak On October 9, 2014 @ 2:03 PM In Broadband,Federal Communications Commission,Forbearance,Net Neutrality,Reclassification,Section 706,Title II | Comments Disabled

Last week, Representative Henry Waxman—the ranking Democrat on the powerful House Energy and Commerce Committee—wrote a letter to Federal Communications Chairman Tom Wheeler [1] where he proposed a new and quite peculiar “hybrid” legal theory to support aggressive new Open Internet Rules.  Under Mr. Waxman’s three-step theory, the FCC would first reclassify broadband Internet access as a Title II common carrier telecommunications service.  Next, Mr. Waxman would have the Commission use its authority under Section 10 [2] to forbear from nearly all of Title II—including even Section 201 [3] (requiring “just and reasonable” rates) and Section 202 [3] (prohibiting “unreasonable discrimination”). Finally, having dispensed with Title II yet—presumably retaining common carrier status for broadband—Mr. Waxman would have the FCC promulgate a series of “bright line, prophylactic rules” (i.e., a “no blocking” rule, a “no throttling” rule, and a “no paid prioritization” rule) under Section 706 [4].

If this “hybrid” theory makes sense to you, then shame on you.  The defects in this legal scheme are obvious.

To understand Mr. Waxman’s theory, let’s take a few steps back and discover its motivations, keeping in mind his goal is to reinstate the type of bright-line rules against “blocking” and “paid prioritization” that the FCC attempted in its 2010 Open Internet Order [5].  The setup for his argument is straightforward.

First, Mr. Waxman doesn’t think a pure Section 706 approach will work because of the D.C. Circuit’s ruling in Verizon v. FCC [6].  In that case, the D.C. Circuit remanded the FCC’s 2010 Open Internet Order primarily on the grounds that having classified broadband Internet access as a Title I information service, Section 153(51) [7] prohibits the Commission from imposing de facto Title II common carrier regulation (i.e., Title I specifically allows for individualized bargaining).  As Mr. Waxman observes:

the Commission’s broad authority under section 706 is limited by the common carrier prohibition in section 153 of the Communications Act, which prohibits the FCC from establishing bright-line rules for entities that are not telecommunications service providers.

However, reasons Mr. Waxman, if the FCC reclassifies broadband as a Title II common carrier service, then the constraints imposed by Section 153(51) fall away and there is now a clear path forward for Mr. Waxman’s proposed new “no blocking,” “no throttling” and “no paid prioritization” rules.

Yet, despite Mr. Waxman’s desire eliminate Broadband Service Providers’ ability to engage in individualized bargaining as permitted by the D.C. Circuit in Verizon, Mr. Waxman also readily admits that he also doesn’t like the constraints on Title II regulation imposed both by its plain language and eighty years of legal jurisprudence.  In particular, Mr. Waxman acknowledges that “Title II has been interpreted to allow paid prioritization arrangements in telephone services, which creates precedents that would need to be distinguished.”  (For you non-lawyers, the line “precedents that would need to be distinguished” means “legal constraints which run contrary to my position.”)  Since the intent of Mr. Waxman’s proposal, inter alia, is for the FCC to impose a bright-line rule against “paid prioritization,” this precedent won’t do.  To get around this thorny problem, he proposes that the FCC forbear from anything in Title II that creates a precedent for paid prioritization.  Those sections would be Sections 201 and 202, so naturally Mr. Waxman encourages the FCC to “forbear from using sections 201 and 202 and most other sections of Title II.”  After all, Mr. Waxman claims, “the FCC is authorized to do [so] under section 10 of the 1996 Telecommunications Act.”

If we put all this together, it becomes clear that Mr. Waxman wants broadband to be a common carriage service, thus nullifying the Section 153 problem, but he doesn’t want any of the Title II baggage of common carrier service.

But there’s a big defect in this logic.

As noted a moment ago, Mr. Waxman recognizes—as should anyone familiar with Title II regulation—that Title II allows paid prioritization [8].  He also recognizes that it is Section 201 and 202 that do the permitting, which is why he wants the FCC to forbear from those sections specifically. What do these critical sections require? Section 201 requires that:

All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable …

Section 202 requires that:

It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service …

To simplify a great deal for present context, Section 201 would prohibit a “zero price” for a common carrier service since such a “rate” would be confiscatory and thus unjust (implicating the “no blocking” rule).  Section 202 would permit different rates for services that are not “like,” thereby permitting a higher price for a higher quality (or prioritized) service (implicating the “no paid prioritization” rule).  There is a lot of precedent on such matters [8], as Mr. Waxman acknowledges and therefore explicitly wishes to avoid, since such pesky precedents—in his words—“could create additional litigation risks.”  (For a discussion of discrimination in Section 202, see our paper Non-Discrimination or Just Non-Sense [9].)  According to Mr. Waxman’s theory, getting rid of Sections 201 and 202 and using Section 10 forbearance authority solves this problem and thus permits the “no blocking” and “no paid prioritization” bright-line rules.

Section 10 forbearance plays a critical role in this theory.  So, let’s turn to the requirements of Section 10.  It is certainly true that the FCC can forbear from nearly any part of the statute.  To forbear, by Section (10)(a)(1), the Commission must determine that, among other things,

enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory.

Does this language look vaguely familiar to you?  Have you seen the language—“the charges, practices, classifications, or regulations by, for, or in connection with”—before?  Have you seen the terms “just and reasonable” and “not unjustly or unreasonably discriminatory,” or at least their very close matches?  Indeed you have, in Sections 201 and 202 of the Communications Act.  In effect, Section 10(a)(1) is merely a mandate that forbearance is not possible unless Sections 201 and 202 are satisfied.  So, while the FCC may forbear from sections 201 and 202, it cannot forbear from the mandates of sections 201 and 202.  It is these mandates, not the numbers “201” and “202”, the permit paid prioritization.  In other words, the same precedent on section 201 and 202 attaches to Section 10.  Therefore, even under Mr. Waxman’s theory, Title II “allow[s] paid prioritization arrangements.”  The courts will see right through this naked attempt to untether the FCC’s authority from any limiting principle.

Setting this obvious logical flaw aside for the moment, there is another profound legal defect in Mr. Waxman’s proposal.  In a paper I authored this past summer [10], I pointed out that while the D.C. Circuit’s decision in Verizon vastly expanded the FCC’s authority to oversee Broadband Service Providers under Section 706, the Commission’s use of Section 706 is not unfettered.  In particular, the D.C. Circuit in Verizon specifically held that “any regulatory action authorized by Section 706(a) [must] fall within the Commission’s subject matter jurisdiction over such communications—a limitation whose importance this court has recognized in delineating the reach of the Commission’s ancillary jurisdiction.”  (Emphasis supplied.)  According to the D.C. Circuit’s holding in Comcast v. FCC [11], this means that any use of Section 706 must be tied directly to a specific delegation of authority in “Title II, Title III, or Title VI…”

Given this requirement, here’s the rub with Mr. Waxman’s logic:  If you want to use Section 706 as authority, but you have used your Section 10 authority to forbear from all of the pertinent provisions of Title II, then how do you invoke under Section 706 the requisite ancillary authority to a statute that, for legal purposes, is no longer in force?

Simple answer: you can’t.

But while there are glaring legal defects in Mr. Waxman’s proposal, it’s the big picture that should give both the American voter and the conscientious policymaker a bit of pause.  Namely, Mr. Waxman’s proposal seeks to extend radically the FCC’s power under Section 706 without any limitations.

Indeed, in his letter, Mr. Waxman readily concedes the point and makes the intent of his proposal crystal clear: as noted above, he wants to provide the FCC with all of the regulatory power contained in Title II and under Section 706 yet, in his own words, “allow[] the FCC to avoid Title II precedents that were initially developed for regulation of telephone services.”  In other words, Mr. Waxman wants to have his Title II cake and eat it too (i.e., regulate at will under Section 706 without any limiting principles).

By way of example, take the following quote. As Mr. Waxman writes,

If broadband Internet access service is reclassified as a telecommunications service, the common carrier prohibition disappears and the FCC does not need to allow [sic] “individualized bargaining” between broadband providers and content companies. The FCC can then use the full authority of section 706 to promulgate categorical rules to protect the open Internet.

Stating the matter bluntly, Mr. Waxman would have the FCC use Section 706 to impose naked rate regulation without any of the constraints contained in the eighty years of precedent that governs traditional ratemaking protocol under Title II.

To use a term with which I’m sure Mr. Waxman is intimately familiar, this is pure “chutzpa.”  While Mr. Waxman claims that “[f]orbearance of [Sections 201 and 202] will help assure broadband providers that the FCC does not plan to regulate the rates of broadband Internet access service”, as I show here this statement is patently false.  Under Mr. Waxman’s proposed “no blocking,” “no throttling” and “no paid prioritization” rules, the FCC would impose draconian “zero price” regulation on broadband service providers (which is exactly what the court in Verizon found so offensive [10]).

Mr. Waxman’s cavalier approach towards the FCC’s forbearance authority under Section 10 is equally revealing.  It is now readily apparent that Mr. Waxman does not want to use forbearance to further the goal of the 1996 Telecommunications Act to “provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans….” by reducing regulation; to the contrary, Mr. Waxman wants to use forbearance under Section 10 as a vehicle to expand radically the power of the FCC.

Contrary to Mr. Waxman’s protestations, the FCC has ample authority to write strong Open Internet rules under Section 706 [10] that can prevent anticompetitive conduct yet flexible enough not to deter investment.  Mr. Waxman’s proposal is that the Commission should impose draconian “bright line, prophylactic rules” at any cost—the radical expansion of the FCC’s powers and the potential adverse economic consequences be damned.  While I expect such naivety regarding the law from the throngs of “clicktivists” who have flooded the Commission of late, it is disappointing to see such a shallow analysis from a man who once held the gavel of the House Committee with direct oversight responsibilities over the FCC.  While I appreciate my Mr. Waxman’s efforts to propose an alternative solution to a contentious problem, the Commission must reject Mr. Waxman’s flawed “hybrid” legal proposal or it will find itself once again on the wrong side of an appellate remand.

 

 


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URLs in this post:

[1] Representative Henry Waxman—the ranking Democrat on the powerful House Energy and Commerce Committee—wrote a letter to Federal Communications Chairman Tom Wheeler: http://democrats.energycommerce.house.gov/sites/default/files/documents/Wheeler-FCC-Net-Neutrality-2014-10-3.pdf

[2] Section 10: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title47/pdf/USCODE-2011-title47-chap5-subchapI-sec160.pdf

[3] Section 201: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title47/pdf/USCODE-2011-title47-chap5-subchapII-partI-sec201.pdf

[4] Section 706: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title47/pdf/USCODE-2011-title47-chap12-sec1302.pdf

[5] 2010 Open Internet Order: https://apps.fcc.gov/edocs_public/attachmatch/FCC-10-201A1.pdf

[6] Verizon v. FCC: http://www.cadc.uscourts.gov/internet/opinions.nsf/3AF8B4D938CDEEA685257C6000532062/$file/11-1355-1474943.pdf

[7] Section 153(51): http://www.gpo.gov/fdsys/pkg/USCODE-2011-title47/pdf/USCODE-2011-title47-chap5-subchapI-sec153.pdf

[8] that Title II allows paid prioritization: https://www.phoenix-center.org/BloombergBNA23July2014.pdf

[9] Non-Discrimination or Just Non-Sense: https://www.phoenix-center.org/perspectives/Perspective10-03Final.pdf

[10] In a paper I authored this past summer: https://www.phoenix-center.org/PolicyBulletin/PCPB35Final.pdf

[11] Comcast v. FCC: http://scholar.google.com/scholar_case?case=12158705661002658248&hl=en&as_sdt=6&as_vis=1&oi=scholarr

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