FCC Plans ‘Totality of Circumstances’ Test for Net Neutrality ‘Commercial Reasonableness’
The FCC will propose a “totality of the circumstances” test to determine whether agreements between ISPs and edge providers are “commercially reasonable” under its net neutrality rewrite, agency officials told us. Public interest groups have expressed outrage over Chairman Tom Wheeler’s draft NPRM that would let ISPs offer commercial arrangements for higher speeds as long as those arrangements are “reasonable.” Determining what exactly constitutes reasonableness could be difficult, industry and agency officials said in interviews Friday. The rulemaking is tentatively set for a May 15 commissioner meeting vote (CD April 25 p1).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Whether a company involved in the transaction is an “affiliated provider” is one of the factors in assessing reasonableness, FCC officials said. But the NPRM doesn’t consider a company affiliation to be “per se” unreasonable, an agency official said. According to the official, the test would also examine the agreement’s impact on consumers; the agreement’s technical characteristics; what industry practices are; and whether the ISP engage in good faith negotiations. An agency spokesman did not comment.
The test is “incredibly vague” and “amorphous,” said an agency official. Nor does the NPRM explicitly give examples of conduct that’s presumed to be unreasonable, the official said. “All it does is ask questions” about whether any practices would be per se unreasonable, the official said: Some paid prioritization is allowed “but the question of how much or what kind” is “very vague."
Lack of clarity and acting on a “case-by-case” basis go hand in hand, said industry observers both for and against net neutrality rules. “For the ‘commercially reasonable’ test to pass legal muster, there must be considerable leeway built into assessing reasonableness so that it is not just common carriage by another name,” said Free State Foundation President Randolph May. The test must also be “flexible enough to account for a variety of factors, especially including consideration whether the practice promotes economic efficiencies that may lead to investment and innovation and benefit consumers,” May said. “Just because a particular business practice is novel or may disadvantage some marketplace participant or another certainly should not render it commercially unreasonable. If that were the case, then new business models that benefit consumers will be less likely to emerge."
A vague test for commercial reasonableness might discourage creativity and investment in Internet services, said John Bergmayer, senior staff attorney at Public Knowledge. “Why risk starting something when the ISPs might thwart you? There are other things to do in life.” However good a case-by-case approach might be, “only a well-funded or unusually persistent entity will be able to really take advantage of it,” Bergmayer said.
"The Commission certainly has good reason to tread carefully,” said Berin Szoka, president of TechFreedom. “I strongly suspect a per se prohibition on deals with affiliates would be struck down in a facial challenge.” The “really interesting” question is whether the commission will explicitly create a rebuttable presumption that deals with affiliates are unreasonable, he said. The “easier” course would be to “throw that in as one of many factors without specifying how this factor will be applied, and then imposing it either as a per se rule or as a strong but rebuttable presumption,” he said. Another option would be to require that if an ISP offer a certain kind of deal to an affiliate, “you must offer the same deal to non-affiliates,” Szoka said: That “sounds an awful lot like common carriage, denying room for individualized negotiation.”
Perhaps acknowledging the potential for uncertainty, the NPRM would seek comment on whether there could be a “prospective review” so an ISP might get guidance on whether a business practice is acceptable, an FCC official said. The notice also would ask about the possibility of seeking “non-binding staff opinions” on a commercial practice, the official said. Bergmayer criticized the prospective review proposal as an attempt to “have it both ways.” If you “want to do something prospectively, do a rulemaking,” he said.
The FCC also dropped its plan regarding preempting state laws that prohibit municipal broadband services, said an agency official. Wheeler had said he might try to preempt such laws, after the U.S. Court of Appeals for the District of Columbia Circuit in January threw out earlier net neutrality rules. For the NPRM, the agency plans to stay within the scope of that earlier, 2010 order, said an agency official.
CEA has “long supported” the view that the FCC “needs to ensure that competitive forces preserve the Open Internet,” CEA President Gary Shapiro said in a statement Thursday reacting to word that the FCC is circulating a net neutrality proposal to allow “commercially reasonable” ISP deals (CD April 25 p1). The FCC need not take much action, “if any at all,” to preserve an open Internet, Shapiro said. But if the commission does act, “then it must give effect to the limits on its authority and take a cautious and factual approach,” Shapiro said. “The Internet is one of the greatest economic and cultural forces ever. It has created multitudes of new businesses and jobs, while connecting people across geographic borders and providing anytime/anywhere access to information and entertainment."