CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

First, a brief intro to the SUFRN.  The SUFRN option is not reflected in the instructions to Form 323 or in the form itself . . . BUT, if you get deep into completing the form, you get to the FRN question, which simply requires you to insert an FRN for each attributable interest holder. Immediately under the blank where you’re supposed to insert that FRN, the form reads: “If Respondent is unable to provide an FRN for an individual attributable interest holder reported in this listing, press above button”.

And sure enough, there’s a button labeled “Special Use FRN”. If you push that button, you get a pop-up message that instructs that you don’t need to use an SSN-based FRN. However, according to the pop-up message, eligibility to use a SUFRN arises only “if, after diligent and good faith efforts, Respondent is unable to obtain, and/or does not have permission to use, a Social Security Number in order to generate an FRN for any specific individual whose FRN must be reported on Form 323.”

The pop-up message thus limits use of an SUFRN to situations in which the respondent has made “diligent and good faith efforts” to obtain SSN-based FRNs but has been “unable to obtain, and/or does not have permission to use” such FRNs.

Omitted from the form, the pop-up message, and the FAQs found on the Bureau’s website dedicated to All Things Form 323 is the fact that respondents “are not required to provide SSN-based FRNs . . . if they object to the submission of their Social Security Numbers.” Nor does the Bureau acknowledge that “no individual attributable interest holder will be required to submit Social Security number to obtain an FRN” in order to respond to Form 323. 

But that’s precisely what the Commission and the D.C. Circuit worked out in June-July, 2010.

There’s a fair amount of backstory here. You can catch up with it by reading this series of posts chronicling L’Affaire Form 323 from 2009-2010. You can also read the Emergency Petition we filed with the Commission on September 14, 2011.   If you don’t feel like reading the entire history of the matter – entertaining though it may be – and would prefer to cut to the chase, here are direct links to the FCC’s pleading to the Court and the Court’s response.

The bottom line is that, with respect to use of SUFRNs, the Commission made a very specific representation to the Court and the Court expressly relied on that representation. According to the FCC, respondents “are not required to provide SSN-based FRNs . . . if they object to the submission of their Social Security Numbers.” And according to the Court, “no individual attributable interest holder will be required to submit Social Security number to obtain an FRN” in order to respond to Form 323.

We think that all Form 323 filers are entitled to know that. For some reason, the Commission seems unenthusiastic about that prospect.

As we read all this, inability to obtain an SSN-based FRN – which is what Form 323 suggests is a prerequisite to hitting the SUFRN button in the first place – appears to be immaterial. Ditto for making “diligent and good faith efforts” to get hold of SSN-based FRNs – a duty imposed by the pop-up message when you hit the “Special Use FRN” button. The Commission appears to have told the Court in no uncertain terms that no individual attributable interest holder has to file an SSN-based FRN is he/she objects to doing so. Period.  If the Commission disagrees with our interpretation, it might want to say so.

Another, less prominent, aspect of the SSN-based FRN question involves changes made to the form back in December, 2009, which have since been quietly tweaked. In December, 2009, the SUFRN pop-up message (as well as a public notice issued on December 4, 2009) insisted that reliance on a SUFRN for purposes of getting an Ownership Report on file by the then-operative deadline was only an interim measure. Respondents remained under an “ultimate duty to obtain a fully compliant FRN” for all folks identified in Form 323. According to the December 4, 2009 public notice, the Commission expected all filers relying on SUFRNs to “update their filed ownership reports with fully compliant FRNs when these are obtained.”

The language about some “ultimate duty” to update after the fact was deleted from the pop-up message by the Commission in March, 2010.  You may not have noticed that, since the deletion was effected without explanation or public notice from the Commission. The FCC did ask OMB for permission for the deletion, but in so doing merely characterized the change as “non-substantive”, without offering any rationale. Since the Commission didn’t bother to tell anybody about this change, much less explain it, there was no reason to believe that the concept of some continuing “ultimate duty” did not remain in place.

We mentioned this in our Emergency Petition, and the Commission appears to have taken our comments on this point to heart . . . sort of. On September 28, 2011 – that would be just a couple of weeks after we filed the Emergency Petition, and a mere three days before the form was to go “live” for the 2011 biennial filings – the Commission quietly asked OMB to authorize yet another tweak to the language in the pop-up message, and OMB obliged. Now, stuck on at the end of the pop-up message is the following sentence: “The guidance provided on Special Use FRNs in the Media Bureau’s December 4, 2009 Public Notice (DA 09-2539) has been superseded as discussed herein.”

“As discussed herein”? The problem is that there is no obvious discussion in the pop-up message (or on the FCC’s website) referring back to the December, 2009 public notice, so anyone reading that newly-added sentence wlll be hard-pressed to know what it’s supposed to mean. Our guess is that the Commission is backing away from the notion of some “ultimate duty” to follow-up with SSN-based FRNs for everybody, but the Commission sure hasn’t said that expressly. By contrast, the Commission was very explicit in imposing that duty back in December, 2009 – so if it wants now to countermand that earlier instruction, you’d think that the Commission could do so with similar clarity.

Unfortunately, the Commission appears still to be trying to shore up the multiple weaknesses in its Form 323 in a piecemeal, less-than-public way. The history of Form 323 since 2009 has not been a particularly happy one, and the most recent developments don’t suggest much improvement. With the filing window opening on October 1, the Commission has apparently not focused on problems with the form that were identified, and should have been fixed, more than a year ago. The last-minute addition of unilluminating language in the pop-up message does not suggest that the Commission has taken the time to think through the form carefully. Indeed, the manner in which that last-minute addition was submitted to OMB suggests less than careful and thoughtful preparation:

(This is a screen grab, taken from the OMB website, of a portion of the request for OMB approval submitted by the FCC on September 28, 2011.)

Maybe we’re missing something here, but a hand-written change to a form which is supposed to go “live” within a couple of days doesn’t suggest that the folks in charge of that form have the best handle on it. That’s too bad, since it’s a form that all commercial broadcasters are required to file. We had hoped that the efforts we made in 2009-2010 would have assisted the Commission to get its Form 323 act together by now. We may just have to keep trying.

The change involved the question of including separate FCC Registration Numbers (FRNs) for each individual and entity reflected in each report, whether or not that individual or entity was in fact the licensee or even in a position to wield anything akin to control of the licensee. 

We won’t bore you with the details of the back-and-forth we had with the Commission on that touchy point – you can read all about it in our previous blogs on the subject. All you – and apparently, the folks at the Commission – need to recall is that we here at FHH (on behalf of ourselves and a number of clients) asked the U.S. Court of Appeals for the D.C. Circuit to tell the FCC that the Commission could not lawfully impose the FRN requirement as that requirement had been described up to that point. The Commission fussed a bunch, delayed the filing deadline to give it a chance to tweak things, but eventually tried to stick to its FRN guns. We went back to the Court. The Court ordered the FCC to respond to our arguments.

A funny thing happened at that point. After it was ordered to respond but before it did so, the Commission revised the FRN language in Form 323. It then explained to the Court that the form, as revised, made it “clear” that “users are not required to provide SSN-based FRNs for the July 8 filing if they object to the submission of their Social Security Numbers”. (Note that that gloss on the revised form might not have been 100% consistent with the language of the revision, at least in the minds of some folks, but that’s the way the FCC explained it to the Court.) The Court, in turn, interpreted the FCC’s statement to say that “no individual attributable interest holder will be required to submit a Social Security number to obtain an FRN [i.e., FCC Registration Number] for the July 8, 2010, biennial filing deadline or for any imminent non-biennial filing of Form 323.” And, based on that interpretation, the Court denied our petition.

None of that history is reflected in the form’s instructions or on the FAQ page, at least as of today (August 23, 2011). But the fact of the matter is that, in its explanation to the Court, the Commission clearly indicated that nobody would be required to submit a Social Security Number-based FRN if he/she objects to such submissions, regardless of the basis for any such objection. To the extent that the form’s instructions and the FAQ may seem to say otherwise, those indications can and should be disregarded (unless, of course, the Commission is inclined to schlep down to the Court again to explain why what it told the Court in 2010 should no longer apply 2011).

Keep an eye out – particularly here on www.CommLawBlog.com – for any further wrinkles that might pop up on this front in coming months.

Remember that the filing requirement applies to full power TV, commercial radio, and all Class A and low power TV stations, but not TV or FM translators or low power FM stations.  Noncommercial educational AM, FM, and TV stations must file biennial reports, but they use FCC Form 323-E and must file on staggered dates corresponding to the state where they are licensed rather than the uniform nationwide date that applies to commercial stations.

Behind closed doors

Back in May, 2009, the Commission announced that Form 323 would be revised. But at that time the Commission said absolutely nothing about requiring individual attributable interest holders to cough up their SSNs part of that process. Likewise, when the Media Bureau announced, in June, 2009, that it had revised the form, it didn’t mention any SSN requirement; to the contrary, the Bureau specifically said that the revised form did not give rise to any need for confidentiality and did not raise any privacy concerns. (Even though the Bureau solicited public comments on its revised form, it elected not to make the revised form available for review, which made it difficult – no, wait, make that impossible – to comment on the draft form.)

From behind a cloud of denial, the revised form appears

In August, the Bureau shipped its revised Form 323 over to the Office of Management and Budget (OMB) for its approval. In so doing, the Bureau – or maybe it was the Commission itself (it’s impossible to tell exactly who sent the item over to OMB) – again expressly claimed that its handiwork did not present anything to worry about from a confidentiality or privacy perspective. But OMB posted the revised form for all to see, finally. Lo and behold, the revised form required that every attributable interest holder listed in any Form 323 be identified by his/her own SSN-based FCC Registration Number (FRN). In other words, in order to complete the form, licensees would have to force their various attributable interest holder to obtain their own FRNs, and that in turn would require those interest holders to hand over their SSNs to the FCC.

Accompanying the form was a “supporting statement” which again asserted that the revised form did not involve privacy or confidentiality issues.

A number of broadcast-related parties pointed out to OMB that, au contraire, the SSN/FRN requirement did indeed implicate serious privacy/confidentiality considerations . . . and oh, by the way, the FCC had never given anybody the opportunity to comment on that requirement in the first place. A month later, a “revised supporting statement” was submitted – presumably by the Commission, although it was unsigned and otherwise unattributed – in which the obvious privacy/confidentiality concerns were finally acknowledged.

In a separate response to the various comments, an official in the FCC’s Office of Managing Director claimed that the SSN-based FRN requirement was a “vital mechanism for data quality assurance”. In essence, the Commission was moving full speed ahead with its revised form, FRN requirement and all.

The FCC blinks once, or maybe twice

Despite the problematic record underlying the revised form, OMB approved it in October, 2009, and the Bureau promptly announced that the new form would have to be filed by December 15. In November, Fletcher Heald asked the Commission to stay the implementation of the form, noting (among other things) that an impressive number of shortcomings in the development of the revised form precluded its implementation. The Commission ignored our pleading, but a week or two later postponed the filing deadline into January. 

In early December, the Commission made the revised form available for folks to fill in., at least for a while. But it also revealed a further change relating to the FRN requirement. Now parties could avoid disclosing SSN-based FRNs, but only after the licensee had made good faith, diligent efforts to obtain all necessary FRNs. If they had done so but still were unable to come up with the FRNs, respondents could use randomly-generated “special use FRNs” (SUFRN) as a temporary expedient – emphasis on the word “temporary”. According to the revised instructions, use of a SUFRN did not relieve the respondent of its “ultimate duty” to hunt down “fully compliant” FRNs for all concerned. And the SUFRN was not available for non-biennial Ownership Reports (such as those filed by assignees or transferees after the consummation of their acquisition of licenses).

So the SUFRN option in fact did nothing to eliminate the FRN obligation.

In late December, with the January deadline fast approaching, Fletcher Heald – joined by ten state broadcasting associations – asked the D.C. Circuit to intercede. Several hours after that request was filed, the FCC announced that it was indefinitely postponing the filing of the revised form, giving rise to cautious optimism that the FCC might be re-thinking the FRN requirement. (Apparently as a result of the indefinite postponement, three months later the Court denied Fletcher Heald’s December request.)

It’s baaaack.

In early April, it became clear that any optimism, cautious or otherwise, was unfounded. The Bureau announced that the revised Form 323 was back on the calendar. New due date: July 8. The announcement said nothing about the FRN question. But careful review of the FRN question on the form revealed new language. Gone was the admonition that respondents had some “ultimate duty” to chase down SSN-based FRNs for all their attributable interest holders. Instead, the form now provided that

[r]espondents who use a non-SSN based “Special Use FRN” will be deemed fully compliant with the Form 323 filing obligation for purposes of this initial filing and the lack of SSN-based FRNs in response to Question 3(a) will not subject Respondents to enforcement action.

The Commission did not provide any public notice announcing, much less explaining, this change.

The Court steps in

Fletcher Heald, along with several state associations and a number of broadcast licensees, headed back to court with a second mandamus petition. With the new deadline just weeks away, on June 14 the Court ordered the FCC to respond to our arguments by June 21 (later extended to June 23). 

Here’s where things got interesting.

On June 17, the FCC sent OMB yet another revision to the form, changing the instructions to the FRN question further:

Old language: An SUFRN could be used “[i]If, after using diligent and good-faith efforts, Respondent is unable to obtain a Social Security Number”.

New language: An SUFRN may be used “[i]f, after using diligent and good-faith efforts, Respondent is unable to obtain, and/or does not have permission to use, a Social Security Number in order to generate an FRN”. (emphasis added)

In other words, if a respondent had somebody’s SSN and could theoretically have signed that person up for his/her own FRN, the respondent was not obligated to do so if the individual had not given his/her permission. Obviously, the Commission was moving away from its original notion that all respondents had an unavailable “ultimate duty” to nail down SSN-based FRNs for all attributable interest holders.

Additionally, the new instruction made the SUFRN option available not only for the biennial Ownership Report, but also for all other non-biennial uses of the Form 323.

OMB approved that new language on June 21, and on June 23 the Commission relied on the newly-relaxed instructions in responding to FHH’s arguments. The Commission didn’t bother to issue any public notice announcing its revised instructions. More surprisingly, in its response to the Court the Commission also didn’t bother to alert the Court that the language on which the FCC was relying was brand-spanking new – and that that language had been concocted only after the Court had ordered the Commission to respond.

What the Commission did do in its response to the Court was to provide its own gloss on the revised instruction. According to the Commission’s response, that revision makes it “clear” that

users are not required to provide SSN-based FRNs for the July 8 filing if they object to the submission of their Social Security Numbers.

To some, that gloss might go somewhat beyond the precise language of the latest revised instruction. But that’s what the FCC told the Court.

The Court then interpreted the Commission’s gloss to mean that “no individual attributable interest holder will be required to submit a Social Security number to obtain an FRN [i.e., FCC Registration Number] for the July 8, 2010, biennial filing deadline or for any imminent non-biennial filing of Form 323.” And, based on that interpretation, the Court denied our second mandamus petition.

Call us crazy, but we’re prepared to declare a significant (although not yet total) victory here. Yes, the mandamus petition was “denied”, but only because the Commission backed off the FRN requirement. And since the Court clearly identified that retreat as the basis for the Court’s decision, any attempt by the Commission to re-impose its previous, unrelaxed standard would open the door for another mandamus action. In other words, a major flaw in the revised report has been corrected, at least temporarily, as a result of our efforts.

Unfortunately, the last-minute timing of the FCC’s response and the Court’s action kept these developments out of the public eye just as the July 8 deadline rolled around. As a result, it’s likely that a number of folks who might not otherwise have provided their SSNs did so under the misimpression that they had to. Next time, they might want to check out CommLawBlog first.

Epilog

Is the relaxation – or effective elimination – of the SSN-based FRN requirement permanent? Who knows? Since the FCC has never bothered to explain precisely why such FRNs are supposedly essential, it’s hard to say whether the FCC could justify such a requirement (although many strongly doubt it). And the longer the Commission relies on SUFRNs, the harder it will be to justify any claim that there is no adequate substitute for SSN-based FRNs. 

But the Commission clung tightly to the requirement in the face of strong arguments, and relented only when forced by the Court to try to explain its position. That suggests that we may not have seen the last of the SSN-based FRN requirement. We’ll keep our eyes out for further developments – check back here for updates.

And before signing off, let’s hear it for the folks who stood up with us at the D.C. Circuit in one or both of the mandamus petitions: The Alabama Broadcasters Association, the Alaska Broadcasters Association, the Arkansas Broadcasters Association, the Kentucky Broadcasters Association, the Louisiana Association of Broadcasters, the Mississippi Association of Broadcasters, the New Mexico Broadcasters Association, the Puerto Rico Radio Broadcasters Association, the South Carolina Broadcasters Association, the Tennessee Association of Broadcasters, Hubbard Broadcasting, Inc., Salem Communications Corp. and Spring Arbor University. We appreciate the support they provided and the confidence they showed in us.

A petition for mandamus is what the Court terms an “extraordinary” request in which the petitioner asks the Court to force the agency to comply with statutory requirements which the agency appears to be ignoring. Unlike the more conventional appellate process – which routinely contemplates that the FCC must make its case in a responsive brief before the Court will act one way or the other – the mandamus process does not guarantee any response from the FCC. To the contrary, the Court can, and often does, simply deny or dismiss a petition for mandamus with a two or three sentence order without bothering the Commission at all.

But the Court’s rules provide that a petition for mandamus will not be granted unless the agency is given an opportunity to respond. That’s one reason the Court’s order directing the FCC to respond to the FHH et al. petition is of more than passing interest. Throw in the fact that the Court’s order gives the FCC a mere seven days in which to respond, and that interest grows: such an abbreviated response deadline at least suggests that the Court may be looking to assemble a complete record and act on the petition in advance of the fast-approaching due date (currently July 8) for filing reports on the revised Form 323.

By our reckoning, the FCC’s response to the Court’s order will mark the first time that the Commission will have had to address, in a formal presentation, the unusual – and, in the view of a number of observers, unlawful – approach by which it has tried to force all “attributable” principals to give the FCC their SSNs. Anyone who has been following this story will want to check back here next week to see what the FCC has to say.

Ah, the old days . . .

But first, a nagging question. The Internet has been popular for two decades. Why are we are talking about network neutrality only now? The anti-NN forces note that the stunning growth of the Internet occurred without regulation. Why not just continue?

True, there was no Internet regulation in the dial-up days, but an even stronger force was at work: competition.  The phone companies all had departments functioning as Internet service providers (ISPs). The FCC’s Computer III rules required the bigger phone companies to open their networks to competing ISPs. That gave most people dozens of ISPs to choose from. None of the ISPs dared tamper with customers’ content, because the customers could easily go elsewhere.

Then broadband appeared, and quickly became essential as web pages grew more complex. Most consumers have either one or two sources for broadband: the cable company, over the same wires that carry cable TV; and the phone company, first via DSL and later, in some areas, through fiber-optic cables. 

The DSL channel was originally subject to the Computer III sharing rules, but the cable never was. The FCC asked whether it should open the cable to competing ISPs, in the manner of Computer III.

Follow this part closely. To apply Computer III, the FCC would have to find that cable broadband is, or includes, a “telecommunications service” – that is, the pure transport of information, for payment, offered to the public. Common sense tells us that sending Internet pages over the cable has to involve a telecommunications service, among other things. But the FCC is not always bound by common sense. According to its 2002 order, the telecommunications component is not separable from the other components, such as interactive choice of content. The FCC resolved to treat the combined, non-separable service as non-telecommunications. That means Computer III does not apply. A cable operator need not open its facilities to competitors, and can require its Internet customers to use its own ISP service. Cable subscribers are not entitled to competition among ISPs.

The Supreme Court’s Brand X case subsequently upheld the FCC. But it did not say the FCC’s decision was the only right one. Rather – and this is the kind of thing that makes non-lawyers glad they picked some other line of work – the court deferred to the FCC’s right to make the decision. The distinction matters because, ruling the way it did, the Court could easily have supported even the opposite outcome from the FCC.

In the meantime, phone companies answered the FCC’s 2002 cable ruling with outraged filings about a “level playing field.” They still had to put their ISP competitors on the broadband channel, while the cable companies enjoyed the exclusive use of their own cables. In 2005, just a few weeks after the Supreme Court handed down Brand X, the FCC ruled that phone-company broadband was, like cable broadband, a combined service to be regulated as non-telecommunications. No more Computer III; no more competing ISPs.

As a result, if you have broadband Internet service, it is very likely that your ISP is the cable company or the phone company. And, if both companies serve your location, odds are your provider has tried to lock you into a long-term deal with a stiff early termination fee. Unhappy with the service? Tough luck.

Still, some people don’t want the Government intruding into the market for Internet services. Others don’t want a near-monopoly provider deciding what content they should receive. After Comcast, is there any hope for the second camp?

A possible way out

Suppose the FCC were to revisit that 2002 cable decision, the one holding the telecommunications and non-telecommunications aspects of Internet service to be inseparable. Could the FCC now change its mind, and separate out the transport-for-pay component as a telecommunications service? Then, instead of applying the full weight of common carrier rules, it could impose just one: a requirement like that in Computer III, requiring the operator to allow competing ISP on the cable. That would bring back competition among ISPs, and create a major disincentive to tampering with content.

Until last year, this would not have been workable. An agency like the FCC could not change its position without an intervening change of circumstances, such as a major shift in the industry landscape. But last year’s Supreme Court case of Fox v. FCC changed the rules on changing the rules. 

After Fox, the FCC need show only that the new policy makes sense – not that it makes more sense than the old policy. Admittedly, abrupt reversals of established policy have historically been disfavored for many good reasons, and such reversals may – as Brother Feldman observes – still be subject to attack as unjustified. But Fox appears to given the agency considerably greater leeway to change its mind.

Had the FCC chosen to regulate the cable transport back in 2002, the cable companies would have gone to court, but they probably would have lost, under the reasoning in Brand X that defers to the FCC’s judgment. And if the FCC could have required ISP competition on the cable in 2002, then the Fox case strongly suggests they could do it today. 

The argument is even better for phone company broadband, which was subject to mandatory-competition rules until 2005. If anything, the case for requiring ISP competition is stronger now, in light of abuses by the providers, followed by the Comcast court’s closing off more direct remedies.

The process has one more step. The FCC can require ISP competition, as above, but not network neutrality, after Comcast. Either one – competition or neutrality – can protect consumers against content discrimination. So why not give the provider a choice? Undo the 2002 and 2005 broadband orders; regulate data transport as telecommunications; require providers to open their facilities to competitors – but waive that rule for providers that adopt network neutrality. Competition will flourish, or content will be available without discrimination. Either way, consumers come out ahead.

Appeal to the Supreme Court.  In its Comcast arguments, the FCC relied on the Supreme Court’s 2005 Brand X decision. That case involved the Commission’s determination that cable modem Internet access service is an “information service” subject to regulation under Title I of the Act, rather than a “telecommunications service” subject to Title II. In its Brand X

opinion, the Supreme Court observed that the FCC “remains free to impose special regulatory duties on [cable Internet access providers] under its Title I ancillary jurisdiction.” In Comcast, the FCC argued to the D.C. Circuit that that Supreme Court language established that the FCC could claim ancillary jurisdiction derived from Title I.

But the D.C. Circuit felt that the Commission was reading too much into that quotation. In the Circuit’s view, just because the Supreme Court said that the FCC had jurisdiction to impose some kind of regulation on ISPs under Title I doesn’t mean that the agency had jurisdiction to impose this particular regulation (i.e., “reasonable” traffic management); rather, the Circuit held, each claim for ancillary jurisdiction must be analyzed on its own merits.

Given that, the FCC could try to convince the Supreme Court to provide a broad interpretation of its Brand X language, broad enough to support the Commission’s claim of authority to regulate ISP traffic management. This would not be an easy case for the FCC. As the D.C. Circuit’s Comcast decision makes clear, the Supreme Court itself has, in a number of decisions, treated the concept of ancillary jurisdiction as narrow. Like the Circuit, the Supreme Court has held that each new assertion of such authority must be evaluated on its own terms.  So the prospects of a broad, result-changing opinion out of the Supreme Court are not good. Additionally, a trip to the Supreme Court would not be quick: it is unlikely that a decision would be released prior to June, 2011, even if the Supreme Court agreed to take the case (which it is not required to do – indeed, the Supreme Court routinely agrees to review only about 1% of the cases presented to it).

Go to Congress. Seemingly the most direct way to fix a lack of jurisdiction is to get Congress to eliminate that lack by enacting legislation specifically providing the Commission with the authority to do what it wants to do. While legislation is perhaps the most direct route, it is neither the quickest nor the surest. Bills designed to give the FCC such authority have been introduced over the last few years – but they have not progressed significantly. While it’s difficult (if not impossible) to pinpoint precisely why proposed legislation gets stalled, in this instance that may be attributable, at least  in part, to a preference by Congressional Democrats to give the FCC a chance to take a first shot at crafting net neutrality regulations. Another factor possibly staying Congress’s hand: a desire to wait and see what the D.C. Circuit would do in the Comcast case. But now that the D.C. Circuit has ruled against the FCC’s assertion of ancillary authority in this area, those two factors have been eliminated.  

While it may be possible to get legislation authorizing very narrow FCC regulation of Internet traffic management enacted before everyone’s attention turns to the November elections, that seems unlikely. Verizon has been calling for much broader legislation to re-write the Communications Act for the “Internet Age,” but that seems even less likely to occur before November, and Verizon’s proposal probably would not provide the FCC authority to adopt net neutrality rules. Indeed, it took years of work to get the last re-write of the Communications Act enacted in 1996.  

Re-classify the Transport Component of Internet Access to be a Title II Telecommunications Service.  The FCC has recognized for some time that their 2008 Comcast Order was in trouble (as anyone who attended the oral argument at the Circuit could have surmised).  Perhaps because of that, some Commissioners have been floating a possible alternative approach: re-classify at least some aspects of Internet access (including, e.g., the transport component) as a Title II telecommunications service. Since Title II unquestionably contains “statutorily mandated responsibilities” (more so than Title I), so the thinking goes, the Commission would be better able to establish that its regulation is “reasonably ancillary” to such responsibilities, thus avoiding the jurisdictional problem identified in the Comcast decision.

But this “re-classification” approach has its own problems. 

First, re-classification would require the reversal of multiple FCC decisions made between 2002 and 2006. Those decision classified cable modem, DSL, wireless broadband and broadband-over-powerline as “information services” rather than telecommunications services. To be sure, the FCC already has a pending “Open Internet” proceeding through which a record might be built in support of re-classification of Internet transport as a telecommunications service. But what would Net Neutrality advocates use to make the case that the Internet environment has changed so radically in the last couple of years: the growth of “edge” providers and third-party Internet applications? Another difficulty: the FCC’s reasoning back in 2002, upheld by the Supreme Court in Brand X, was that even accessing the world wide web required an integrated information service, not merely telecommunications transport. 

Further complicating matters is Congress. Would a majority of Congress be happy with the FCC taking things into its own hands, when many in Congress probably believe that re-classification (at least re-classification that involves increasing regulation on the re-classified service providers) is the responsibility of Congress, not the FCC.  

And, of course, re-classification would generate very strong resistance on all fronts from across many industry segments. Further lengthy court appeals would be certain. 

Build a Stronger Case for Title I Ancillary Authority.  In Comcast, the D.C. Circuit did not rule that it was impossible for the FCC to make the case for ancillary jurisdiction, just that the Commission had failed to do so here. The Court left open the alternative possibility that the FCC could assert jurisdiction over Internet traffic management if such regulation were in fact ancillary to the Commission’s responsibilities under Section 201 of the Communications Act (which requires that common carrier charges and practices must be just and reasonable). 

The potential for such an alternative arises from the fact that the Circuit declined to consider one line of argument presented by the Commission in support of its claim of ancillary jurisdiction. In its brief, the Commission argued that it could regulate Comcast’s practices because discriminatory practices that impact VoIP traffic affect the prices and practices of traditional telephone common carriers. But the FCC had not included that as a basis for its regulation back in its 2008 Comcast Order that was on review – and the Circuit (as well as most other courts) refuses to consider justifications for an agency action which are made only at the appeal stage, and not in the original action on review. So the ultimate strength of that particular argument has not yet been tested in court.

Accordingly, the FCC could use the pending Open Internet proceeding to build a record establishing a nexus to Section 201 responsibilities. However, the FCC’s Section 201 theories seem pretty far-fetched, and it is hard to conceive of other theories that could be stronger. And while the Court also left open the possibility that the FCC could try to show a nexus to its responsibilities to protect broadcast TV stations under Title III of the Communications Act, it is unclear if and how the FCC would take on that task.

Statements released by Democratic FCC Commissioners and legislators suggest that they are determined to move forward and find a way to enact net neutrality regulations. Of the alternatives set out above, re-classification of Internet transport as a Title II service currently seems to have the most momentum, but the Obama administration may choose to push one of the other alternatives, or perhaps to work on multiple paths at the same time.   Either way, we are sure to see the struggle over this issue continue.

The FCC’s position was a little shaky from the start. It never had a rule prohibiting the Comcast action that caused all the trouble, just a loosely-worded policy statement. And nothing in the Communications Act, from which the FCC derives all of its authority, specifically authorizes control over Internet traffic. The FCC thus had to fall back on a claim of “ancillary authority,” based on a catch-all statutory provision that allows the FCC to do pretty much anything “as may be necessary in the execution of its functions.” 

But as the Court had previously held on a number of occasions, ancillary authority applies only if (1) some other statutory provision covers the subject matter, and (2) the challenged action is “reasonably ancillary” to the FCC’s exercising of its authority under (1). The FCC passed the first test, but not the second. The “other provisions” on which the FCC relied, said the Court, were either mere statements of congressional policy (which cannot support ancillary authority) or statutory provisions that miss the specific topics involved in Comcast’s behavior.

As a result, the FCC is legally barred from imposing or enforcing network neutrality.

The FCC still has a few options.  For example, it can ask the same court for a hearing en banc (Latin for “lots more judges”) or appeal to the Supreme Court. Or it can ask Congress for a law that gives it the authority it needs. There may be other alternatives as well, involving adjustments to the existing regulations for a better fit with the existing statutes, but their likelihood of success in court remains to be seen.

But right now, the view from the broadband mountaintop is a little murky. For the time being, at least, Internet providers are free to favor or block content as they choose. And no use complaining to the FCC.

The judges seemed to feed “softballs” to the attorney for Comcast, while giving the FCC lawyer a much harder time. We noted three particularly telling moments:

• The Chief Judge asking the FCC lawyer, “How would you prefer to lose – [on due process or on jurisdiction]?”
• Another judge pointedly asking the FCC lawyer, “Are there any limits” to the FCC’s jurisdictional claim? The lawyer seemed unable to come up with an answer that both satisfied the court and squared with his own theory.
• The Chief Judge remarking, “The impact of our decision [on the FCC’s pending network neutrality rules] will be perfectly clear,” in a context suggesting the court expects to undercut the FCC’s ability to adopt those rules.

But even if the FCC loses this case, it would be a mistake to suppose that marks the end of network neutrality. There are two points to remember.

First, the FCC believes it has a decent argument for jurisdiction based on the Supreme Court’s Brand X decision, which has language supporting the FCC’s authority to regulate at least some aspects of Internet service.  The Comcast court appeared uninterested in hearing about Brand X. But the FCC could ask the Supreme Court to rule in its favor under that precedent.

Second, a loss here on jurisdictional grounds will be an invitation to Congress to step in and give the FCC whatever authority it needs to impose network neutrality. Recent congressional proposals have been a lot tougher than the FCC’s proposed rules.

Either way, an FCC loss in this court will only set off the next stage of the dispute.

Normally you go to the Court of Appeals only after the agency has taken some action which the Court can then review. But in certain extraordinary circumstances, the Court is authorized to step in even absent agency action, to make sure that the Commission is doing what it’s required by Congress to do. The revised Form 323 requires the submission of social security number (SSN)-based FRNs for every individual having an attributable interest/position in connection with any commercial broadcast licensee. As we see it, the FCC’s efforts to steamroll that requirement into place have fallen demonstrably short of Congressionally-imposed criteria, even though affected broadcasters have no conventional way to secure judicial review before they are required to comply – a situation perfectly suited for the “extraordinary writ” process.

So away we went to Court, asking it to stay the implementation of the new form. Since, when we filed the petition, the deadline was still January 11, we asked the Court to treat this as an “emergency” situation, the goal being a ruling by January 4, i.e., a week ahead of the January 11 deadline.

Meanwhile, back at the FCC, representatives from a number of law firms had met with Bureau staffers on Friday, December 18, to demonstrate to the staff that the new Form 323 was, as a purely practical matter, a nightmare. The group served up multiple horror stories of cumbersome on-line processes, system timeouts and losses of “saved” data, all of which contributed to massive amounts of time spent completing the form. (How massive? The group told of cases, involving “moderately complex” ownership structures, where the completion of a single form took 500 to 800 hours. 800 hours? Wrap your mind around that. That’s the equivalent of 20 40-hour weeks – about five months – all dedicated 100% to the completion of a single form. Where’s the Paperwork Reduction Act when you really need it?)

Following the meeting, the group – ably led by Wiley Rein’s Kathleen Kirby, who deserves big props for leading the charge – followed up with a letter requesting an extension of the January 11 deadline as well as various mechanical modifications to the form to alleviate the problems that have been encountered. The letter focused exclusively on the mechanics of the form; it made no reference to the more fundamental legal questions that FHH had raised and the FCC had declined to address.

The Bureau, apparently convinced that their form does have glitches and hiccups, agreed in the Order released on the afternoon of December 23 to suspend the January 11 deadline for biennial Ownership Reports. The suspension is indefinite, and is intended to allow the staff to “investigate what changes can be made” to get the form to work more efficiently without compromising the “completeness, quality, usefulness and aggregability of the data.” The Order provides that, once the dents have been knocked out of the revised form, the FCC will announce a new deadline which will be at least 90 days from the date the New(er) and (More) Improved form is made available.

Note, though, that the form, flawed as it is, is still required to be completed and filed in non-biennial reporting circumstances. Those include consummation reports relative to assignments or transfers of control. (Check out Section 73.3615 if you have any doubts.) But if the form as it currently stands is problematic, why use it at all? That’s just one more question the Commission has declined to answer. 

Also, note that, when the biennial form is eventually filed, it will (according to the Bureau’s Order) still have to reflect ownership as of November 1, 2009. That means that, if the new form were to become available on, say, February 1 (that’s just an optimistic guess on our part), reports would be due 90 days later, i.e., by (let’s see, 30 days hath September . . .) May 3, the first business day in May. That’s six months after November 1. While many licensees may not have changed during that time, it’s reasonable to assume that a significant number will have changed – meaning that those changed licensees will be reporting outdated information likely relating to entities or individuals with which the reporting licensees have no connection at all. That is not a recipe for complete and accurate data collection.

Be that as it may, the deadline for filing biennial reports on the revised Form 323 has now been suspended indefinitely. 

But hold on – what does that suspension do to the Petition filed with the Court?  Well you might ask. With the January 11 deadline gone, the immediate threat to all commercial broadcasters was obviously removed. But the deadline suspension does nothing to cure the underlying unlawfulness of the new SSN-based FRN reporting requirement. And notwithstanding the suspension, non-biennial Ownership Reports must still be filed on the new form, with the unlawful SSN-based FRN requirement. And the FCC continues to show no inclination to address, much less resolve, the issues which FHH has raised about that unlawfulness.

In other words, the suspension does absolutely nothing to correct what we believe to be the more fundamental flaws in the new form. (Not surprisingly, in its Order the Bureau claimed that FHH’s motion for stay, filed with the Commission in November, was rendered moot by the Order. We disagree with that example of bureaucratic wishful thinking.)

Obviously, the Bureau’s Order was a late-breaking development that the Court should know about, so within a couple of hours of the release of the Bureau’s suspension Order, we were back in Court, supplementing our Petition. In our Supplement we advised the Court of the Bureau’s Order and acknowledged that, because of the deadline suspension, there is no longer any need for “emergency” relief, i.e., a ruling by January 4. BUT we emphasized that the form is still seriously flawed, that non-biennial filers are currently being harmed by those flaws despite the suspension, and that those flaws are still not susceptible to judicial review through conventional means. In other words, while we withdrew the request for “emergency” relief, we emphasized that prompt extraordinary intervention by the Court is still called for here. Accordingly, we renewed our request that the Court consider our Petition.

With the arrival of Christmas weekend, we can all expect at least a couple of days of peace and quiet on the Form 323 front. But we should not expect that to last long. Stay tuned.