National Cable & Telecommunications Ass'n v. Brand X Internet Services

In the United States, modern telecommunications law began in 1934 with the passage of the first Telecommunications Act. This act created the Federal Communications Commission and charged said agency to regulate telegraph and telephone providers "regardless of whether they had monopoly power." The Commission also was to place common carrier restrictions on such providers. A "common carrier" designation has been historically applied to "private entities which [have] served the public in the performance of public functions similar to those performed by the government...." In addition, under common carrier status these entities were charged with "certain obligations."[2]

With the increased adoption of cable television in the 1970s, the courts were tasked with deciding whether the new medium should be classified according to common carrier stipulations. The first test came in 1972 with United States v. Midwest Video Corp. In the case, the FCC created a rule which forced cable providers with 3,500 or more subscribers to broadcast or otherwise make their facilities available for local public-access programming. A Court of Appeals vacated the decision, ruling that the Commission had no right to issue it. The Supreme Court reversed, stating that the FCC could indeed regulate cable providers through its so-called ancillary jurisdiction. Furthermore, the Court stated that '"until Congress acts to deal with the problems brought about by the emergence of CATV, the FCC should be allowed wide latitude."'[3] Seven years later another case dealing with cable and common carrier came before the Court. FCC v. Midwest Video II involved another FCC decree, this time requiring cable providers with 4,500 or more subscribers and twenty or more channels to provide some of their channel space for publicly-minded programming.[4] This time, the Supreme Court sided with the cable company, reversing the Appeals Court ruling and stating that the FCC overstepped its bounds in passing the regulations. In its opinion, the Court wrote that "with its access rules, the Commission has transferred control of the content of access cable channels from cable operators to members of the public who wish to communicate by the cable medium. Effectively, the Commission has relegated cable systems, pro tanto, to common-carrier status.'" This was the first time the Supreme Court distinguished between entities that were subject to common carrier restrictions and those that were not.[5]

In 1996, Congress passed the Telecommunications Act of 1996, which regulated telecommunications services in light of the breakup of AT&T's monopoly. Providers of telecommunication services were required to sell access to their networks to the public.[6]

Small Internet service providers, in the era of dial-up service, had equal access to home users because the first services were provided over plain old telephone services (POTS) which were regulated as common carriers.

When Cable and Telephone operators wished to have themselves exempted from the competitive requirements of the Telecommunications Act, they pressured the FCC to declare that Internet access was not a telecommunications service, which it did in 2002.[7] With this ruling, Telephone companies could give their own in-house operations pricing advantages over outside competitors, who frequently would be offered line access at double the rate for high speed internet access services on the same line. Telephone companies such as AT&T also require that customers of third party ISPs purchase AT&T-branded landline services in order to provide DSL. Cable companies, on the other hand, offered no access at all to their data lines. These policies would be illegal if Internet were ruled a Telecommunications Service, and telephone companies were forced to act as Common Carriers.

Predatory pricing and unfair service conditions, such as the above-mentioned bundling requirement, led Brand X and a number of other Internet Service Providers to dispute the FCC ruling defining Internet not to be a Telecommunications Service.

Small ISPs like Brand X hoped that common carrier treatment would open up Internet services to wider competition, benefiting the public with lower prices and better services. A petition was made by Brand X and others to review the FCC's order in 2003.[8] The FCC's ruling that cable internet service was not a "cable service" was affirmed, but the ruling that it was strictly an "information service" was vacated by the three judge panel, citing the Circuit's June, 2000 decision in AT&T v. City of Portland and the case was remanded for further action.

The Court ruled 6–3 that because the Ninth Circuit precedent had held the Telecommunications Act provisions "vague", that case was not entitled to preference over the decisions of the agency. Moreover, the Supreme Court agreed that the provisions were vague and ambiguous; since under Chevron an administrative agency's interpretations of statutes it is responsible for are entitled to deference, the FCC (charged with enforcement of the Telecommunications Act) was entitled to deference in its determination.[1] More generally, the Court ruled that in matters of interpreting a statute the execution of which an administrative agency is charged, the agency's interpretation will be applied even in the face of circuit precedent, unless that precedent had held the statute "unambiguous" under Chevron rules (i.e., analysis under the traditional canons of statutory interpretation made clear the statute's meaning). The decision of the Court of Appeals was therefore reversed. In his dissent, Justice Scalia disputed the Court's contention that '"cable company does not offe[r] its customers high-speed Internet access because it offers that access only in conjunction with particular applications and functions, rather than ‘separately, ‘as a stand alone offering.’”

Brand X is considered key case law in the debate of net neutrality in the United States, as it established that the FCC had the authority to classify Internet service as either an information service or a telecommunications service, if the facts were muddy and even if its decision didn't best suit the facts.

Challenges to the FCC's interpretation from technical and economic standpoints have generally been overridden by the case law precedent set by Brand X.

The FCC created net neutrality protections three for Internet service providers three, each time resulting in legal battles resolved at the court, with the decision bound by Brand X:

• The FCC's "Four Freedoms" policy statement in 2005 was challenged by Comcast after the FCC ordered it in 2008 to stop interfering with peer-to-peer protocols such as bittorrent. While Comcast agreed to stop blocking bittorrent, the court ruled the FCC did not have the authority to require it to do so.
• The FCC's 2010 Open Internet Order created principles of net neutrality that applied to Internet services, without reclassifying Internet services as common carriers, but was challenged by ISPs. In the 2014 Verizon Communications Inc. v. FCC, the DC Circuit Court of Appeals ruled that the FCC had little power to regulate ISPs while they were still classified as information services (as from the Brand X ruling).

• This led the FCC to pass the 2015 Open Internet Order, which reclassified ISPs as common carriers, giving it legal power to enact net neutrality protections.[10] The FCC's 2015 Open Internet Order prohibited ISPs from blocking, slowing down or speeding up services or classes of services, prohibited paid fast lanes or fast lanes that favored an ISP's own services and gave the FCC the authority to prevent ISPs from violating net neutrality protections at the point where data entered their network. The Order also gave the FCC the ability to ban future behavior under a "general conduct" standard that outlaws unfair practices. The FCC chose not to apply many provisions of Title II, including forbearing from rate regulation or requiring Internet Service providers from having to lease their lines to competing ISPs.

Again this was challenged in court, but in the 2016 case United States Telecom Ass'n v. FCC, the court determined that the FCC's authority to reclassify ISPs was still valid from the Brand X ruling.[11]

• With the changed administration after the 2016 election, the new membership of the FCC issued a rule to rollback the prior 2015 Open Internet Order, reclassifying ISPs as information services and swearing off any authority whatsoever to regulate ISPs beyond requiring ISPs to be transparent about their practices. This order was passed in December 2017 and went into effect in June 2018. In the subsequent 2019 case Mozilla v. FCC, the court again relied on Brand X to assert that the FCC has this power to reclassify ISPs under the Communications Act, despite saying that the facts barely fit the FCC's classification decision, and validated the rollback.[12] The courts added that since the FCC says it no longer has the power to oversee Internet service providers, it can't order the states not to pass their own, can't provide Lifeline subsidies to lower-income families for broadband connections, and can't force utility pole owners to allow new broadband providers to use their poles.

In 2020, Thomas wrote a lone dissent in the Supreme Court's rejection to hear Baldwin v. United States, a case involving the Internal Revenue Service (IRS) and its interpretation of policies. Lower courts had ruled in favor of the IRS in light of Brand X. Thomas, who had authored the original Brand X majority opinion, wrote in the dissent that "Regrettably, Brand X has taken this Court to the precipice of administrative absolutism. Under its rule of deference, agencies are free to invent new (purported) interpretations of statutes and then require courts to reject their own prior interpretations." and had suggested that the Court should revisit Brand X as he sees it now "to be inconsistent with the Constitution, the Administrative Procedure Act (APA), and traditional tools of statutory interpretation."[13]

• Text of National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005) is available from:  Cornell  CourtListener  Findlaw  Justia  Oyez (oral argument audio)  Google Scholar 
• NY Times--Cable Wins Internet-Access Ruling
• Cybertelecom:: Internet over DSL
• Slashdot.org discussion of the decision
• Article discussing the decision as applied to the Board of Immigration Appeals