Court: FCC has no power to regulate Net neutrality

The Federal Communications Commission does not have the legal authority to slap Net neutrality regulations on Internet providers, a federal appeals court ruled Tuesday.

A three-judge panel in Washington, D.C. unanimously tossed out the FCC's August 2008 cease and desist order against Comcast, which had taken measures to slow BitTorrent transfers before voluntarily ending them earlier that year.

Because the FCC "has failed to tie its assertion" of regulatory authority to an actual law enacted by Congress, the agency does not have the power to regulate an Internet provider's network management practices, wrote Judge David Tatel of the U.S. Court of Appeals for the D.C. Circuit.

Tuesday's decision could doom one of the signature initiatives of FCC Chairman Julius Genachowski, a Democrat. Last October, Genachowski announced plans to begin drafting a formal set of Net neutrality rules--even though Congress has not given the agency permission to do so. That push is opposed by Verizon and other broadband providers.

Comcast welcomed the ruling in a statement that said: "Our primary goal was always to clear our name and reputation." The National Cable and Telecommunications Association, the cable industry's lobby group, elaborated by saying that Comcast and its other members will "continue to embrace a free and open Internet as the right policy."

Supporters of Net neutrality claim that new Internet regulations or laws are necessary to prevent broadband providers from restricting content or prioritizing one type of traffic over another. Broadband providers and many conservative and free-market groups, on the other hand, say that some of the proposed regulations would choke off new innovations and could even require awarding e-mail spam and telemedicine the identical priorities.

Net neutrality proponents responded to Tuesday's ruling by saying the FCC should slap landline-style regulations on Internet providers, which could involve price regulation, service quality controls, and technological mandates. The agency "should immediately start a proceeding bringing Internet access service back under some common carrier regulation," Public Knowledge's Gigi Sohn said. The Media Access Project said, without mentioning common carrier regulations directly, that the FCC must have the "ability to protect the rights of Internet users to access lawful content and services of their choice."

In a statement on Tuesday, the FCC indicated that it was thinking along the same lines. The DC Circuit did not "close the door to other methods for achieving this important end," the agency said. A spokeswoman declined to elaborate.

Early reaction on Capitol Hill cleaved along party lines. Kay Bailey Hutchison, the Texas senator and senior Republican on the Senate Commerce Committee, said: "It would be wrong to double down on excessive and burdensome regulations, and I hope the FCC chairman will now reconsider his decision to pursue expanded commission authority over broadband services." Rep. Joe Barton, the Texas Republican, warned that "the FCC should not reclassify" broadband providers as common carriers; Rep. Fred Upton, the Michigan Republican, added that such an action by the FCC "would be illegal"; Sen. Orrin Hatch, the Utah Republican, called the decision "good news for the future prosperity of the Internet."

Watch this: A CNET Conversation with Julius Genachowski

21:31

But Rep. Ed Markey, the Massachusetts Democrat who had drafted one of the unsuccessful Net neutrality bills, said: "I encourage the (FCC) to take any actions necessary to ensure that consumers and competition are protected on the Internet." Markey noted that he reintroduced similar legislation last summer--it's been stuck in a House subcommittee even though House Speaker Nancy Pelosi once said there was an urgent need to enact it.

Broadband providers have found allies among free-market groups that worry about the FCC expanding to become the Internet Regulatory Commission. Adam Thierer of the Progress and Freedom Foundation wrote that if the agency deems "everyone under the sun to be a common carrier, it will become Regulatory World War III." Thomas Lenard, president of the Technology Policy Institute, said in e-mail that, contrary to what Public Knowledge claims, "it is obvious that applying common carrier regulation to the broadband sector is regulating the Internet. To suggest otherwise makes no sense."

The FCC had known all along that it was on shaky legal ground. Its vote to take action against Comcast was a narrow 3-2, with the dissenting commissioners predicting at the time that it would not hold up in court. FCC Commissioner Robert McDowell, a Republican, said at the time that the agency's ruling was unlawful and the lack of legal authority "is sure to doom this order on appeal."

The ruling also is likely to shift the debate to whether Congress will choose to explicitly grant the FCC the authority to regulate companies' network management practices. One wildcard: Unless there is a groundswell of complaints about a specific company, as there was with Comcast throttling BitTorrent transfers, there may be little appetite for controversial legislation. And cable providers have renewed their pledge to keep the Internet open.

In 2006, Congress rejected five bills, backed by groups including Google, Amazon.com, Free Press, and Public Knowledge, that would have handed the FCC the power to police Net neutrality violations. Even though the Democrats have enjoyed a majority on Capitol Hill since 2007, their leadership has shown little interest in resuscitating those proposals.

"We must decide whether the Federal Communications Commission has authority to regulate an Internet service provider's network management practices," Tatel wrote in his 36-page opinion on Tuesday. "The Commission may exercise this 'ancillary' authority only if it demonstrates that its action--here barring Comcast from interfering with its customers' use of peer-to-peer networking applications--is 'reasonably ancillary to the...effective performance of its statutorily mandated responsibilities.'"

In August 2005, the FCC adopted a set of principles saying "consumers are entitled to run applications and use services of their choice." But the principles also permit providers' "reasonable network management" and, confusingly, the FCC admitted on the day of their adoption that the guidelines "are not enforceable."

The FCC's 2008 vote to punish Comcast is based on those principles and stems from a request from Free Press and its political allies, including some Yale, Harvard, and Stanford law school faculty.

This is not the first time that the FCC has been rebuked for enacting regulations without actual legal authority to do so. In 2005, the Court of Appeals for the D.C. Circuit ruled the agency did not have the authority to draft its so-called broadcast flag rule. And a federal appeals court in Pennsylvania ruled in the Janet Jackson nipple exposure incident that the FCC's sanctions against CBS--which publishes CNET News--amounted to an "arbitrary and capricious change of policy."

Update at 9:15 a.m. PDT: History and more details added.

Update at 11:21 a.m. PDT: More reactions, including Comcast statement, added.

Update 11:25 a.m. PDT: Here's e-mail I received from Sam Feder, a former FCC general counsel who's now a partner at the Jenner and Block law firm in Washington: "There are no great paths forward. The court decision is not broad enough to have a good shot at overturning it in the Supreme Court, and for the same reason, it is unlikely to prod Congress into enacting legislation. Reclassifying broadband (as a common carrier) -- a path advocated by some public interest groups -- might provide a more sound legal basis for moving forward, but the politics of that move are awful. The ISPs would fight tooth and nail to avoid reclassification, and the public interest groups are unlikely to be happy unless reclassification is accompanied by significant regulation. In the end, that move makes nobody happy."

Update 1:10 p.m. PDT: Added more analysis, reaction from NCTA.

Update 3:05 p.m. PDT: White House press secretary Robert Gibbs was asked about the court's ruling. He replied: "We have not had an opportunity to fully evaluate the FCC's decision -- the decision affecting the FCC, which, as you know, is an independent agency." When asked whether the administration continues to support the notion of Net neutrality, he replied: "It does, and the president discussed that, obviously, in the campaign. We're committed to that and committed to providing businesses with the certainty that they need as well."

Update 3:30 p.m. PDT: Added more background.

CNET's Marguerite Reardon contributed to this report