Your Internet service provider is now free to make deals with content providers like Amazon or Netflix to allow those companies to pay more to move their content to you more quickly than companies that do not pay for priority treatment.

The Federal Communications Commission (“FCC”) has sought to compel broadband service providers to treat all Internet traffic the same regardless of source (known as “net neutrality”) under its 2010 Internet openness rules. See In re Preserving the Open Internet, 25 F.C.C.R. 17905 (2010). The rules imposed disclosure, anti-blocking and anti-discrimination limitations on broadband services, with some exemptions for mobile Internet services.

Verizon challenged the FCC’s application of its Internet openness rules, claiming the FCC overstepped its authority, and won a ruling from the United States Court of Appeals for the DC Circuit that vacates what proponents of the rules consider to be the most important portions of the rules: the anti-blocking and anti-discrimination limitations. See Verizon v. FCC, 2014 US App. LEXIS 680, 2014 WL 113946 (DC Cir. Jan. 14, 2014). A 3-judge panel determined that while the FCC has general authority to regulate broadband providers’ treatment of Internet traffic under the Telecommunications Act of 1996, the FCC lacks the specific authority to enforce its anti-blocking and anti-discrimination rules. Such rules could be applied to common carriers, but the FCC itself previously determined in 2002 that broadband Internet services are not telecommunications services subject to common carrier regulation (like, for example, land line telephone services). While the FCC’s 2002 determination deviated from the FCC’s historic treatment of (“dial-up”) Internet services provided over telephone lines, it was upheld by the United States Supreme Court in Nat'l Cable and Telecomms. Ass'n v. Brand X Internet Servs., 545 US 967 (2005), and now it has worked against the FCC in the Verizon decision.

The 2-1 majority opinion in favor of Verizon was careful to point out that it was not a ruling on the advisability, whether good or bad, of net neutrality, but only on whether the Internet openness rules were within the FCC’s statutory authority.

What happens now?

The FCC can appeal the Verizon ruling to the Supreme Court, but may not receive any more favorable review from the high court unless it overturns itself and reclassifies broadband services to be a utility-like service that can be subjected to stricter regulation by the FCC. The Verizon ruling would not prevent the FCC from changing course if it so desires, but practically speaking the FCC would face political pressure from opponents of the Internet openness rules if it elects to do so. The FCC’s 2002 exemption of broadband services from utility-like regulation, and the passage of the 2010 Internet openness rules both occurred under two different presidential administrations, with two different former FCC chairmen. The present head of the FCC, an Obama appointee, has indicated that he supports an open Internet, but that he is also willing to allow providers to experiment with how to deliver Internet services. Whether the FCC is likely to overturn itself on its classification of broadband services under his leadership remains to be seen.

In the meantime, telecom and cable companies are free to experiment with blocking or delaying access to some websites and offering enhanced access to others. Proponents of net neutrality fear free expression will be stifled if content is selectively blocked and that cash-flush companies will pay to prioritize access to their content while small companies and start-ups won’t be able to do so. It’s also possible that the higher costs incurred by content providers to enhance access to their content may be passed on to end users.

Contact Information

To discuss Internet issues, please contact alert authors Ted Claypoole or Nadia Aram, or the Womble Carlyle attorney with whom you normally work.

Womble Carlyle client alerts are intended to provide general information about significant legal developments and should not be construed as legal advice regarding any specific facts and circumstances, nor should they be construed as advertisements for legal services.

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