Wednesday, August 26, 2009 - The Progress & Freedom Foundation Blog

Good-Bye, Humpty Dumpty?


"When I use a word," Humpty Dumpty said in a rather a scornful tone, "it means just what I choose it to mean - neither more nor less." "The question is," said Alice, "whether you can make words mean different things." "The question is," said Humpty Dumpty, "which is to be master - that's all."

Lewis Carroll, Through the Looking Glass, and What Alice Found There (1871)

In my essay, "Good-Bye, Humpty Dumpty?", I discuss how a recent decision of the D.C. Circuit Court of Appeals in Cohen v. U.S., 2009 U.S. App. LEXIS 17677 (No. 08-5088)(D.C. Cir. Aug. 7, 2009) reaffirms that there is an important distinction between general statements of administrative agency policy and legislative rules. In making this determination, the court will look to the language of the administrative action, as well as its effect; subsequent attempts by agencies to "re-label" their actions as something other than what was originally intended will not stand. In Cohen, the D.C. Circuit rebuffed an attempt by the IRS to treat as a general statement of policy a Notice by which it both conceded its refund obligation for certain improperly collected telephone excise taxes and established a binding and exclusive refund process. The court found that the Notice created enforceable obligations and rights on the part of the IRS, the telephone service providers, and the taxpayers that effectively constrained the agency's discretion by establishing an administrative refund process. In short, it created a legally binding rule.

The D.C. Circuit's reasoning in the Cohen case could be an indication of the fate of the Federal Communications Commission's 2008 Comcast P2P Order, currently in the midst of its briefing cycle before that same court. I have previously written at some length about the many failings of this decision in an essay, law review article, and most recently in an "amicus curiae" brief to the D.C. Circuit. The law review article and amicus brief together demonstrate that the FCC lacks the "ancillary jurisdiction" (that is, the regulatory authority) it claimed to subsequently enforce its 2005 Internet Policy Statement against Comcast. The Cohen decision is like a looking-glass version of the FCC's Comcast action -- it shows what happens when an agency tries to claim that a prospective binding rule is merely a statement of general policy -- in contrast to the FCC acting as if a policy statement is as binding and enforceable as a rule.

As I have written, it is apparent that the Internet Policy Statement is just what it purports to be: a general statement of policy for the purpose of providing "guidance and insight" into the thinking of the agency. Although it does not rely heavily on the sorts of agency "weasel words" typically used to retain discretion, it didn't really need to, as it fails to contain a single mandatory constraint on either agency discretion or ISP operations. In other words, in accordance with the Internet Policy Statement, the members of the FCC believe that, in the agency's sole discretion, it may do something. Or it may not. Whatever! The only "obligation" - if one may call it that - contained in the statement is that the FCC "will" continue to make policy by incorporating the principles into its "policymaking activities." It is worth noting that the FCC did not even go so far as to commit to incorporating the principles in its rulemaking activities. Additionally, the Internet Policy Statement created no obligations on the part of ISPs, and therefore created no new and enforceable Internet service subscriber rights. Ironically, the FCC later created prospective binding rules of behavior for itself and Internet service providers in the Comcast decision, while disclaiming that it was doing so. Calling Humpty Dumpty!

In the Comcast P2P Order the FCC, under former Chairman Martin, nonetheless claimed that it had the authority to enforce, in an adjudicatory proceeding, the four principles contained in its 2005 Internet Policy Statement. The FCC also claimed that it could simultaneously use the adjudication to announce additional policy principles (prospectively applicable and enforceable against private parties). Neither the fact that the Internet Policy Statement is entitled "Policy Statement," nor that it unambiguously states that "we are not adopting rules in this policy statement" - a view reflected in contemporaneous separate statements of FCC Chairman Martin, other Commissioners and the Wireline Competition Bureau Chief - nor the lack of notice that the agency would subsequently treat the principles contained in the Internet Policy Statement as binding rules, was considered by the FCC an impediment to its enforcement action. These procedural difficulties lie at the core of Comcast's request for appellate review of the decision.

The Internet Policy Statement is, in its lack of binding and enforceable commitments, the exact opposite of the IRS Notice the court found to be a substantive rule in Cohen that established a mandatory administrative excise tax refund process binding on both the IRS and the taxpayer. Having recently found that an administrative agency cannot simply change a substantive rule into a general policy statement just by saying so, it would be surprising if the D.C. Circuit upholds the FCC's belated attempt to change a general policy statement into an enforceable rule.

The Hill recently reported that new FCC Chairman Julius Genachowski has stated "that this FCC will support net neutrality and will enforce any violation of net neutrality principles," and has indicated that the FCC's general counsel is working on the best legal strategy to defend its open Internet principles. Given the myriad jurisdictional and procedural problems with the Comcast P2P Order, the current FCC, under the leadership of Chairman Genachowski, would be well advised to drop any defense of its actions, vacate the Order on its own accord, and initiate a serious inquiry into its jurisdiction and procedures with respect to the Internet and the provision of Internet services. This could be done either as a part of one of the many pending rulemaking or inquiry proceedings begun, but left unresolved, by Chairman Genachowski's predecessors.

In the final analysis, I believe the FCC will conclude that the legal justifications and course pursued in the Comcast P2P Order are unsustainable and that Congress has not delegated to it broad authority to regulate the Internet or Internet services. The best legal strategy, accordingly, may very well be for the agency to seek such authority from Congress, should it determine that it needs to act in this area-a proposition subject to great debate. As Chairman Genachowski has stated, "If we don't [have the tools to enforce violations of the FCC's open Internet principles], we will say so." This is a refreshing departure from the past. Let us hope that the new FCC Chairman will approach this very important task in a less Humpty Dumpty-like fashion than his predecessor. Now that would be change we can believe in.

posted by Barbara Esbin @ 4:52 PM | Broadband , Cable , Net Neutrality , The FCC