Verizon loses early skirmish in Net neutrality litigation

A D.C. appellate court says no to Verizon's request to have its case heard by the same judges who ruled against the FCC in the Comcast case. But the lawsuit has only just begun.

WASHINGTON--A federal appellate court ruled yesterday against Verizon in its first-out-of-the-gate lawsuit challenging the Federal Communications Commission's Open Internet Order--the so-called Net neutrality rules.

But the decision turned on a minor procedural issue and gives no indication of how the court will ultimately decide. The ruling was only one sentence.

"Request for Comcast panel of judges denied," the court said.

After filing its appeal on January 20 , Verizon asked that its case be heard by the same panel of three judges that decided against the FCC in an April 2010 case involving Comcast's alleged throttling of BitTorrent traffic.

In that case, the agency tried to sanction Comcast for failing to adhere to the FCC's earlier Net neutrality policy statements. But the D.C. Circuit ruled that the agency had not been given authority by Congress to regulate the network management practices of broadband Internet providers. The sanctions were dismissed.

Yesterday's ruling denied Verizon's request to have its appeal heard by the same three judges. Verizon had argued that the Comcast panel had relevant expertise, given the similarity between the two cases.

The request was a long shot, and the decision to deny Verizon's motion wasn't surprising. In federal courts, the panel of three judges that hear an appeal is usually assigned randomly. However, when an appellate court returns a case to a lower court for further proceedings, subsequent appeals in the same case are often returned to the original panel in the interests of "judicial efficiency."

But despite the similarities between the Comcast case and Verizon's appeal of the new rule, the cases are not part of the same docket. Comcast's appeal was from sanctions issued under the former policy statements, while Verizon is challenging the new rules on their face.

Which court? The answer matters
Verizon had much to gain and nothing to lose by asking for the Comcast panel. The denial has no bearing on any other aspect of the case. But getting its appeal before the same judges would have given Verizon a stronger hand in its effort to get the new rules nullified.

That's because in approving the Net neutrality rules in December, a bare majority of FCC Commissioners relied on nearly identical legal arguments to those rejected by the court in the Comcast case . The judges who decided Comcast may have seen the FCC's December rulemaking as thumbing the agency's nose at their April 2010 decision.

Verizon has other bows in its quiver. Indeed, the company's appeal was unusual in many respects, signaling a clever--perhaps too clever--strategy by the company's lawyers.

For one thing, Verizon didn't even wait for the new rules to be published, arguing that its interests became impaired the day the order was released and that it had only 30 days under the law to challenge them.

The FCC has already moved to dismiss Verizon's appeal , as well as a similar case filed later by MetroPCS. The agency argues that the appeals came too early and must be refiled once the final rules are published in the Federal Register.

Verizon has said it will refile its appeal once the rules are published, but it may be maneuvering to be first to the courthouse. Filing the first case could mean Verizon will be able to control important procedural aspects of the litigation, which is likely to take a year or more to reach a resolution.

The most significant feature of Verizon's strategy, which the court has yet to decide, is which federal circuit court will ultimately determine the fate of the net neutrality order. Verizon challenged the rules under a provision of the Communications Act that deals with the revocation or modification of a "license"--here its license to use wireless spectrum for mobile broadband.

The more traditional route to challenge an FCC rulemaking is to file a Petition for Review. But under federal law, parties who have standing to file a petition may do so in any of the 12 federal circuit courts of appeal. In the event--likely here--that petitions are filed in more than one court by more than one party, the cases are consolidated and a random lottery determines which court will actually hear arguments.

Under the provision cited by Verizon, however, appeals from FCC licensing decisions are heard exclusively by the D.C. Circuit. So if Verizon can convince the court that the licensing provision governs its appeal of the new rules, all challenges will be heard in the D.C. Circuit.

Yesterday's decision only means the original Comcast judges may not be the trio who will decide Verizon's challenge to the new rules. But more important is Verizon's effort to keep the case out of another circuit.

Why does Verizon prefer the D.C. court? The D.C. Circuit, which hears the majority of appeals from federal regulatory agency decisions, has been increasingly skeptical of the FCC's efforts to extend its authority through what is called "ancillary jurisdiction," one of the operating principles of the net neutrality rulemaking. The court rejected the application of ancillary jurisdiction in the Comcast case and in several other important cases over the last decade.

In 2005, for example, the D.C. Circuit rejected efforts by the FCC to mandate "broadcast flag" technology in TVs and other receiving devices, allowing broadcasters to limit how and when programs could be recorded at home. There too the FCC argued that its authority over broadcasting gave it ancillary jurisdiction over consumer electronics manufacturers, an argument the court treated with derision.

More procedural matters to be decided next
The motion to have the license appeal heard by the Comcast panel of judges was Verizon's longest reach, and the denial of that motion doesn't affect the overall strategy.

The D.C. Circuit will next decide if Verizon and MetroPCS were premature in filing their respective appeals. If so, both companies will refile, along with perhaps other parties, some of whom may argue the net neutrality rules weren't strong enough. Either way, Verizon will continue to press its view that the D.C. Circuit has exclusive jurisdiction over all challenges to the rules.

The case may ultimately wind up in the U.S. Supreme Court. In the last decade, however, the Supreme Court has rarely overruled the D.C. Circuit in cases involving the FCC's authority. Indeed, the FCC didn't even try to appeal the Comcast decision to the U.S. Supreme Court. And a Supreme Court's decision to hear an appeal of whatever decision is reached in the net neutrality litigation is entirely discretionary.

 

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