Courts

Net Neutrality Goes on Trial: A Guide to Verizon v. FCC


Verizon headquarters in New York

Photograph by Scott Eells/Bloomberg

Verizon headquarters in New York

A federal court will take up a major challenge to the Federal Communications Commission’s attempt to regulate the Internet today, with oral arguments in the dispute between the U.S. government and Verizon Communications (V) over the validity of an order that set regulations on net neutrality. The decision by the three-judge panel could very well reshape the economics of the Internet, the way it is regulated by the federal government, and the stature of the FCC itself.

The case is a major step in a years-long battle over the idea that Internet providers should not be able to play favorites among the different types of traffic passing through their networks, dubbed net neutrality in debates over the years. The FCC’s 2010 Open Internet Order (PDF) set out rules guiding Internet providers, and Verizon quickly challenged on constitutional grounds and over claims that the FCC lacked the authority.

Here are four ways to understand the case:

It’s about how powerful the FCC should be: People who have been following the case say that most of the action will happen in the debate over whether the FCC has the authority to regulate the Internet. This is also where the stakes are highest. Three years ago the U.S. Court of Appeals for the District of Columbia—the same court that is hearing the case on Monday—ruled that the commission hadn’t proven it had such legal power in a case brought by Comcast (CMCSA). This led to the Open Internet Order, and a major question before the judges today is why this case should be any different.

The FCC’s main argument is that it has the authority to do things to speed up the development of a better telecommunication system, a responsibility the government has used to enact rules that will keep Internet providers from choking off innovations brought about by content makers and other companies that don’t own the infrastructure of the Internet. FCC supporters also argue that if Verizon can charge companies for better access on crowded networks, the company actually has an incentive to keep broadband capacity down. Verizon argues that more regulations are hardly the way to bring about speedier innovations.

If the judges aren’t persuaded by the FCC, it could have an impact far beyond net neutrality. The commission is taking on all kinds of Internet-related issues—like privacy, fraudulent billing, and universal broadband access. Stripped of its authority to pursue any of this, the government would be losing a fair chunk of its overall power. “This is not a narrow question about net neutrality, it’s a much broader question about the FCC’s relevance,” says Gigi B. Sohn, the head of the advocacy group Public Knowledge.

On the other hand, the judges may be reluctant simply to grant the FCC power to regulate the Internet, according to Dave Kaut, an analyst with Stifel Nicolaus & Co. “It wouldn’t be surprising if they push the FCC on the limits,” he said. “I don’t think they’re going to give the FCC carte blanche.”

It’s about the first amendment: Among Verizon’s arguments against the Open Internet Order is the contention that it violates the company’s rights under the First Amendment and Fifth Amendment. Appealing to the First Amendment is particularly novel. Verizon is arguing, in a nutshell, that part of its role as an Internet provider is to pick and choose the services it wants to provide. These are editorial decisions, the company says, and should be protected as free speech. This irritates proponents of net neutrality, who see themselves as trying to guarantee that companies like Verizon don’t themselves squash free speech by squeezing the services passing through its wires.

Verizon doesn’t have many examples of how it has used its editorial judgment in its Internet-service business. The free speech argument could also open the company to liabilities that it currently avoids by claiming to be a neutral conduit for information—a common justification invoked to protect Internet companies from responsibility for illicit material found on their networks. If Verizon claims to be the editor of its Internet service, couldn’t it be held responsible for copyright violations and other illegal content it allows its customers to access?

It’s about mobile: A smaller thing to watch will be what the judges think about treating wired Internet differently from wireless.

The FCC has two sets of net neutrality rules. The stricter ones are for broadband providers and prevent discrimination against certain software applications or services, unless such measures are needed to manage their networks. If they do block an app or service, the broadband providers must explain why. Mobile Internet providers have it easier. The mobile Web is newer, more competitive, and easier to clog. Mobile providers can block applications and services but not specific websites. “One possible scenario is that the wireline rules get thrown out and the wireless rules get retained,” said Sohn of Public Knowledge.

It’s about the D.C. Circuit Court: The D.C. Circuit has not been a friendly venue for the FCC. In addition to the Comcast decision, the court has ruled several times to restrict the commission’s power. When this case landed there, many observers saw that fact alone as a major victory for Verizon.

Judge David Tatel, a Democrat who will sit on the panel, wrote the Comcast decision striking down the FCC’s last attempt to implement net neutrality laws, and he is seen as the swing vote. Judge Judith Rogers, also a Democrat, is likeliest to be receptive to the FCC; Judge Laurence Silberman probably won’t be.

As is always the case when a panel of judges takes up a closely watched case, the game on Monday will be to read the tea leaves, based on questions the judges ask. Whichever side is getting most of the grilling will appear more vulnerable. And while the issues at play are mind-numbingly complicated, the arithmetic behind the eventual victor in this particular court case is pretty simple: It’s whichever side gets to two.

Brustein is a writer for Businessweek.com in New York.

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