December 2, 2009 8:28 PM

Net Neutrality Enforcement: If You Love Something . . .

If you love something, set it free; if it comes back it's yours, if it doesn't, it never was.  -Richard Bach

If the quote hasn't tipped you off yet, this is where I stop "hating on" the FCC's NPRM and proposed rules, for all their silliness, and start getting constructive.  This is why I wanted to "change gears" with a quote that has been repeated enough to become a full-fledged, diabetes-cavity-inducing cliché of sweetness.  Yet if the expression wasn't eloquent, or relevant, it would have never gained the popularity it has; which is why it made its way into the Net Neutrality NPRM (well sort of).  So kick back a little, click on to this saccherine-sweet little ditty, and open up your NPRM.  In Paragraph 81, the Commission asks one of the most--perhaps THE MOST--prescient questions in the entire NPRM.

In essence, the Paragraph asks for comment on how the adoption of Net Neutrality rules (by the Commission) would be enforced by the Commission.  This is a good question, because the Commission is not really built to investigate and enforce complex fact patterns.  For example, the Paperwork Reduction Act requires the Commission to seek public comment (allowing at least 30 days for public comment and replies), and obtain Office of Management and Budget approval (allowing the OMB at least 60 days to make a decision on the agency's request) before seeking information from more than 10 parties. 

For a "data driven" Commission, this is more than just a hassle; it presents a real enforcement hurdle--especially for the most egregious and difficult cases.  Moreover, these investigatory handicaps are further limited by the fact that the Commission can only enforce violations of its rules occurring within the last year; that's right, a one year statute of limitations.  Add to that the fact that the Commission has further legal and personnel resource handicaps and it would seem to make the FCC an unlikely sole enforcer of the most anticompetitive, anti-consumer, concerns proscribed by the proposed rules.

So, this is a very real conundrum--and probably deserves a lot more explanation and consideration than given in the NPRM.  The question is this: what if the Commission passes rules and the FCC is the ONLY agency (aside from private parties) that can enforce the rules?   Furthermore, what if the only vehicle for private party redress were under the Communications Act?  This has distinct disadvantages to the public, in that the antitrust laws allow for enforcement by the Department of Justice, the Federal Trade Commission, the state attorneys general, and private parties.  Moreover, the antitrust laws allow prevailing plaintiffs--including states on behalf of their citizenry--to collect three times actual damages suffered, plus attorneys fees; additionally, the antitrust laws have a 4 year statute of limitations and broad discovery rights for plaintiffs.

It is right for the FCC to ask what would happen if it were the only agency responsible for enforcement of any proposed Net Neutrality rules that it adopts.  If that were the case, then would the agency be doing the public more harm than good if the adoption of rules would limit or prevent competition enforcement under the antitrust laws, or other federal consumer protection statutes?  This is an excellent question, given the Supreme Court holdings in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP ("Trinko") and the Court's more recent holding in Credit Suisse Securities (USA) LLP v. Billing ("Credit Suisse").

Briefly, let's go over the facts and holdings in both cases.  In the 2003 Trinko decision, the plaintiff alleged injury under the antitrust theory of "refusal to deal" by a dominant firm, because the defendant allegedly failed to comply with specific duties to deal with rivals imposed under the Telecommunications Act of 1996.  Prior to commencement of the antitrust claim by the plaintiff, the FCC and the New York Public Service Commission both took action to address the alleged violations by the defendant (though not for the pecuniary benefit of the defendant).  The Court held that the Communications Act, as amended by the Telecommunications Act of 1996, imposed more specific duties on regulated private parties than the more general obligations of the antitrust laws imposed on all firms to deal with rivals.  In a case where the primary violation being alleged was a failure to comply with a specific obligation only imposed by regulation, the Court held that the plaintiff's proper venue for redress was under the statute that created the specific obligation (i.e., the Telecom Act), rather than under the antitrust laws.  Indeed, in the Trinko instance, the regulator did police the conduct for which antitrust redress was claimed by the plaintiff.

In Credit Suisse, the Court went further than its holding in Trinko--where it precluded antitrust claims based on alleged breaches of explicit duties created by regulation (vs. general duties already present under the antitrust laws).  In Credit Suisse, the plaintiff was alleging that it was injured by collusion, consistent with the type of collusion the Securities Exchange Commission had already ruled to be illegal under the securities laws.  This is an important factual distinction.  Acts of collusion between multiple firms to injure consumers, or rivals, are scrutinized under a much more stringent antitrust standard than single firm conduct.  Moreover, there were no explicit securities rules that compelled the defendants to act in a manner consistent with the plaintiff's interest.

Nonetheless, the Court, in a decision written by Justice Breyer, held that the securities laws--which, consistent with the antitrust laws, condemned the same behavior alleged to be condemned under the antitrust laws--implicitly preempted antitrust enforcement.  The Solicitor General argued, and the Court even conceded, that there was extremely limited potential for conflict between legal and regulatory obligations if the case was allowed to proceed under the antitrust laws.  Nonetheless, because the securities industry is so important to the economy, the Court held that even this remote risk of conflict was unacceptable.  So, essentially, the Court held that if the regulator could solve the plaintiff's problem, then relief under the antitrust laws is precluded.

This is an important conclusion.  And, while the FCC did solicit comment on the effects of these two cases on the Commission's consideration to impose explicit obligations on broadband Internet access service providers, the Commission did so in a few sentences in the second half of Paragraph 81 of the NPRM.  Moreover, the FCC did not explain in detail the potential consequences of a decision to impose specific, explicit obligations on regulated firms.  This is a BIG DEAL.

Why?  Because the FCC, by adopting rules designed to address legitimate concerns, might be foreclosing from the "enforcement market" a number of more powerful entities, which could address the most egregious concerns outlined by the Commission.  The government antitrust enforcers can prosecute outrageously anticompetitive conduct under criminal laws.  Moreover, we have already explained the greater enforcement incentives, and tools, available to federal and state government, and private parties, under the antitrust laws.  These tools can be a much more effective deterrent to legitimate concerns over true exclusionary behavior practiced by any firms with market power in Internet-related markets--especially, given the FCC's enforcement record for what the Commission has decried as anticompetitive behavior in other industries subject to its regulation.

Here, of course, I'm speaking about subscription television, specifically cable TV.  It is indeed ironic that the NPRM frequently mentions the powerful communications tool that the Internet has become--especially the Internet's potential to deliver video content--and how consumers need to be protected in order to preserve this potential vehicle for video competition.  Am I the only person who thinks this sounds a little absurd?  You kind of have to consider that a lot more people buy cable TV than purchase broadband Internet service, and every (rational) harm to consumer welfare that the Commission has posited in Paragraphs 57-80 has already come to pass (if you substitute "cable TV provider" for "broadband Internet access service provider" and "cable programming" for "content" you'll see what I mean).  Yet, unfortunately, with the tools at its disposal the FCC has been unable to protect consumers from documented price increases and content (capacity) restrictions. 

Ironically, given the Commission's enforcement record in cable-based video--coupled with legal enforcement constraints and limited resources, especially relative to the sheer number of potential antitrust enforcers and the power of the antitrust laws--it is the applications, content, and Internet services firms that have dominant positions in discreet markets today, that would likely be in greater enforcement peril, and facing greater consequences, than the firms on which the specific obligations are directly imposed.  This would indeed be an ironic outcome, because it is these firms (and, curiously, not consumers) that the Commission seems intent on protecting by limiting the imposition of Net Neutrality obligations on broadband Internet access service providers.  If the Commission truly loves competition in all parts of the Internet services distribution chain, it might do best to set it free . . . .

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