Summary

Summary

The NPRM and many of the comments supporting it reflect an ill-considered approach to privacy regulation for ISPs. Getting regulation right is always difficult, but it is all the more so when confronting evolving technology, inconsistent and heterogeneous consumer demand, and intertwined economic effects that operate along multiple dimensions.

[S]ecuring a solution that increases social welfare[] isn’t straightforward as a practical matter. From the consumer’s side, the solution needs to account for the benefits that consumers receive from content and services and the benefits of targeting ads, as well as the costs they incur from giving up data they would prefer to keep private. Then from the ad platform’s side, the solution needs to account for the investments the platform is making in providing content and the risk that consumers will attempt to free ride on those investments without providing any compensation—in the form of attention or data—in return. Finally, the solution must account for the costs incurred by both consumers and the ad platform including the costs of acquiring information necessary for making efficient decisions.

The NPRM fails adequately to address these issues, to make out an adequate case for the proposed regulation, or to justify treating ISPs differently than other companies that collect and use data.

Perhaps most important, the NPRM also fails to acknowledge or adequately assess the actual market in which the use of consumer data arises: the advertising market. Whether  intentionally or not, this NPRM is not primarily about regulating consumer privacy; it is about keeping ISPs out of the advertising business. But in this market, ISPs are upstarts
challenging the dominant position of firms like Google and Facebook.

Placing onerous restrictions upon ISPs alone results in either under-regulation of edge providers or over-regulation of ISPs within the advertising market, without any clear justification as to why consumer privacy takes on different qualities for each type of advertising platform. But the proper method of regulating privacy is, in fact, the course that both the FTC and the FCC have historically taken, and which has yielded a stable, evenly administered regime: case-by-case examination of actual privacy harms and a minimalist approach to ex ante, proscriptive regulations.

Summary

“The Commission undertakes this rulemaking with the commendable goal of enhancing competition. But even the noblest of goals cannot be pursued by plainly illegal means. Unfortunately, that’s exactly what these proposed rules would do.

In our Comments we took issue with the disconnect between the stated goal of competition and the mechanism used to implement it, the unintended results, the vast underestimation of the existing vibrant video marketplace, and the fatal inconsistencies in the logic used to justify the Chairman’s NPRM. In this Reply Comment we highlight another overlooked, but crucial, problem with the proposed rules: they directly violate United States treaty obligations.

As we discussed in our Comments, the proposed rules would violate a number of exclusive rights guaranteed to copyright holders — including the right to license their content to MVPDs on narrow, specific grounds —and will create a high likelihood of exposing MVPDs to secondary liability. But the rules also threaten to violate a host of free trade agreements, to substantially interfere with rights holders’ exclusive right of public performance, and to upend the system of retransmission consent agreements authorized by the Cable Act…”

The Order represents a substantial and unprecedented expansion of the FCC’s claimed authority. The Commission asserts authority to implement agency-defined policy by any means over the entire broadband communications infrastructure of the United States—in the words of FCC Chairman Wheeler, “[t]he most powerful network ever known to Man”[1]—under the auspices of FCC regulation; and it assumes the ability to regulate even beyond this already incredibly broad scope on an “ancillary” or “secondary” basis so long as such regulation has at least a Rube-Goldberg-like connection to broadband deployment. In the Order, the Commission claims authority that it has consistently disclaimed; it ignores this court’s holding in Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014) (“Verizon”); and it bends to the point of breaking the statutory structure and purpose of the Communications and Telecommunications Acts. For all of these reasons, the Order should be rejected as exceeding the Commission’s statutory authority and as presenting and addressing major questions—questions of “deep economic and political significance,” see, e.g., King v. Burwell, No. 14-114, slip op. at 8 (2015)—that can only be addressed by Congress. See Randolph May, Chevron Decision’s Domain May Be Shrinking, THE HILL (Jul. 7, 2015).

The Commission’s authority is based in the 1934 Act, as modified by the 1996 Act. The general purpose of the 1934 Act was to establish and maintain a pervasively-regulated federal telephone monopoly built upon a relatively simple and static technology. This was the status quo for most of the 20th century, during which time the FCC had authority to regulate every aspect of the telecommunications industry—down to investment decisions, pricing, business plans, and even employment decisions. As technology progressed, however, competition found its way into various parts of the industry, upsetting the regulated monopoly structure. This ultimately led to passage of the 1996 Act, the general purpose of which was to deregulate the telecommunications industry—that is, to get the FCC out of the business of pervasive regulation and to rely, instead, on competition.[2] This objective has proven effective: Over the past two decades, competition has driven hundreds of billions of dollars of private investment, the telecommunications capabilities available to all Americans have expanded dramatically, and competition—while still developing—has increased substantially. The range of technologies available to every American has exceeded expectations, at costs and in a timeframe previously unimagined, and at a pace that leads the world.[3]

Today, many Americans are continuously engaged in online interactions. The Internet is the locus of significant political and educational activity; it is an indispensable source of basic and emergency news and information; it is a central hub for social interaction and organization; it is where people go to conduct business and find work; it is how many Americans engage with their communities and leaders; and it has generated hundreds of billions of dollars of annual economic activity.

Regulation of the Internet, in other words, presents questions of “vast ‘economic and political significance,’” Utility Air Regulatory Group v. Envtl. Prot. Agency, 134 S. Ct. 2427, 2444 (2014) (“UARG”), as substantial as any ever considered by a federal agency.

While the Commission disclaims authority to regulate significant swaths of the Internet ecosystem, the Order is nonetheless premised on interpretations of the 1934 Act that do give it authority over that ecosystem. This court should greet the Commission’s claimed authority with substantial skepticism. See UARG, 134 S. Ct. at 2444 (“When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.”) (emphasis added) (quoting Brown & Williamson v. Food & Drug Admin., 529 U.S. 120, 159 (2000) (“Brown & Williamson”). This is especially true given the statutory structure and purpose of the 1996 Act and the Commission’s historical, hands-off approach to the Internet. See King v. Burwell, slip op. at 15 (courts “must turn to the broader structure of the Act to determine the meaning” of language within a statute). Although this court addressed and rejected a challenge to the 2010 Order on these grounds, the Supreme Court has in the intervening months decided two cases—UARG and King v. Burwell—that revitalize the challenge, especially given the 2015 Order’s more aggressive posture.

The FCC claims that new rules were needed to prevent blocking, throttling, and discrimination on the Internet. But the poor fit between the Commission’s preferred regulatory regime and the statutory authority upon which it rests is manifest. This disconnect is made clear by the numerous effects of the regulations that the Commission must describe as “ancillary” or “secondary,” and the numerous statutory provisions that must be forborne from or otherwise ignored in order to make the Order feasible.

In short, the Order rests upon a confusing patchwork of individual clauses from scattered sections of the Act, sewn together without regard to the context, structure, purpose, or limitations of the Act, in order to “find” a statutory basis for the Commission’s preferred approach to regulating the Internet. As such, it fails to “bear[] in mind the ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’” UARG, 134 S. Ct. at 2441 (quoting Brown & Williamson, 529 U.S. at 133).

Accordingly, the court should vacate the Order

[1] See Remarks of FCC Chairman Tom Wheeler, Silicon Flatirons Center (Feb. 9, 2015) at 5, available at https://www.fcc.gov/document/chairman-wheeler-siliconflatirons-center-boulder-colorado.

[2] See, e.g., FCC Chairman William Kennard, A New Federal Communications Commission for the 21st Century, I-A (1999), available at http://transition.fcc.gov/Reports/fcc21.html. (“With the passage of the Telecommunications Act of 1996, Congress recognized that competition should be the organizing principle of our communications law and policy and should replace micromanagement and monopoly regulation.”).

[3] See id. (“[A]s competition develops across what had been distinct industries, we should level… regulation down to the least burdensome level necessary to protect the public interest. Our guiding principle should be to presume that new entrants and competitors should not be subjected to legacy regulation.”)