Case Study: Brand X

Case Study:
National Cable & Telecommunications Association et al. v. Brand X Internet Services et al. (2005)

Full Text of the Opinion: http://www.techlawjournal.com/courts2003/brandx/brandx_scus.pdf

1. Background and Summary of Case.

In February, 2015, the FCC released the 2015 Open Internet Order. Among other things, the Order reclassified broadband Internet access as a telecommunications service subject to common carrier regulation under the FCC’s Title II authority, pursuant to authority granted by the Telecommunications Act of 1996. Litigation in federal courts has already begun to challenge the FCC’s new regulatory scheme, including the FCC’s authority to change broadband’s existing classification from an information service regulated under Title I (in which it was not subject to common carrier regulatory practices).

However, Brand X clarifies the Supreme Court’s perception of this authority. Although in Brand X the Court upheld the FCC’s authority to classify broadband as an information service and not a telecommunications service, the rationale of the majority opinion clearly supports the opposite decision, too. Brand X recognizes the FCC’s authority to make this decision, regardless of which way it decides to classify.

The opinion discussed in this case study was issued concurrently on June 17, 2005 with the certiorari on Federal Communications Commission et al v. Brand X Internet Services et al. It reverses the decision of the Ninth Circuit Court of Appeals which had ruled against the FCC’s classification of broadband as an information service. The Ninth Circuit had reasoned that because cable modems used telecommunications technology, classifying broadband as telecommunication service was the best interpretation of The Telecommunications Act of 1996. The Ninth Circuit reasoned that since the FCC did not make the best interpretation, the agency’s classification could be struck down by the court. Supreme Court Justice Thomas’ majority opinion found fault with the Ninth Circuit’s reasoning.

2. Major Points of Reasoning.

The majority found the FCC’s construction of language from the Telecommunications Act of 1996 to be well within its lawful authority. Much of the opinion provides a primer on internet technology, both emerging and converging at that time. It gives the appropriate technological and policy background for why the thorny distinctions between “information” and “telecommunication” services exist in the first place. Given the complexity of this discussion, it suffices to say it allowed the Court to assert that the FCC’s interpretation of The Act was, in fact, reasonable. That it may not have been the best or even the only interpretation was beside the point to the Court, so long as it was reasonable.

In terms of precedent, the Court disapproved of the Ninth Circuit’s use of AT&T Corp. v. Portland which held that cable modem was a telecommunications service. The Court asserted that the proper precedent to use was Chevron. The Court’s reasoning began first with establishing the ambiguity of The Act, an ambiguity immediately obvious upon any reading of the legislation, and a persistent regulatory problem in more cases than this one.

The Court then uses this ambiguity to establish Chevron as the correct precedent in such a case: “If a statute is ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a federal court to accept the agency’s construction of the statute, even if the agency’s reading differs from what the court believes is the best statutory interpretation. Id., at 843-844, and n. 11” (Thomas, 2005, p. 8).

Therefore, the majority opinion in Brand X clearly established:
1. The Telecommunications Act of 1996 is ambiguous regarding the definitions and classifications of “telecommunications services” versus “information services”, and
2. This ambiguity affords the FCC the authority to classify the services and create regulation based on a reasonable interpretation of the given wording, and
3. This interpretation does not need to agree with any particular court’s preferred reading of the ambiguity but must only be reasonable, and
4. In such a scenario where a court might read The Act differently than the FCC might, the courts must defer to the FCC (per Chevron).

In short, the FCC has authority under the ambiguous terms of the Telecommunications Act of 1996 to classify cable modem internet access as either information service (regulated under Title I) or telecommunications service (regulated under Title II) as it sees fit. Therefore, when considering the 2015 Open Internet Order, it is entirely reasonable to accept the FCC’s authority to now reclassify broadband as a telecommunications service (Title II) despite its earlier classification to the contrary, for this classification power rightly belongs to the FCC.

3. Dissenting Opinion.

Justice Scalia’s dissenting opinion focuses on his belief that because a cable modem has a telecommunications function, it by definition renders broadband cable Internet access a telecommunications service. This contrasts with majority arguments that the essential service provided as broadband Internet access is, by definition, an information service, and the modem is simply a functionally inseparable tool for providing the actual underlying service.

Scalia’s dissent also argued that the “Chevron deference” to agency interpretation gave federal agencies a dangerous amount of power to take “action that the Supreme Court found unlawful” by creating an environment where “judicial decisions” are “subject to reversal by Executive officers” (p. 14, p. 13).

4. Conclusion.

If the distinction between “information” and “telecommunication” services appears confusing or arbitrary, it is exactly this artificial and legally cumbersome distinction between converging technologies the 2015 Open Internet Order seeks to eliminate. While the majority may have been correct on their legal definitions, Scalia too was correct in his insight that these technologies could not logically or meaningfully be separated.
The FCC’s interpretation of Brand X agrees with this analysis. Section C.43 of the 2015 Order refers to both the majority and dissenting opinions of this case. And it states in no uncertain terms,

“Exercising our delegated authority to interpret ambiguous terms in the Communications Act, as confirmed by the Supreme Court in Brand X, today’s Order concludes that the facts in the market today are very different from the facts that supported the Commission’s 2002 decision to treat cable broadband as an information service” (FCC, 2015, Feb. 26, p. 14).

Opponents of the 2015 Open Internet Order who argue the FCC lacks authority to reclassify broadband under Title II betray a shallow understanding of the Brand X case. The FCC may have classified broadband one way for years, but that classification is theirs to make—or, as is now the case, to remake.

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