That neutrality is the issue that won't go away. What is this legal fight about? Who is likely to win? And when will it all play out? This is a Votes in Verdicts Brief.
Welcome to this Votes and Verdicts podcast hosted by Bloomberg Intelligence, part of Bloomberg's Research department, comprised of five hundred analysts and strategists working across all major world markets. Our coverage includes over two thousand equities and credits, as well as outlooks on more than ninety industries and one hundred market indices, currencies, and commodities. In this podcast series, we talk about the
intersection of business policy and law. My name is Jenniferree, and I'm a senior litigation analyst with Bloomberg Intelligence covering antitrust.
And I'm Matt Schuttenhelm, an analyst covering US litigation and policy in the TMT space.
Our Votes and Verdicts Brief series highlights one of our research reports on the Bloomberg terminal, giving listeners a quick takeaway to help grasp the key litigation or policy topic covered in that research. Today is our first one, and my colleague Matt is going to talk about net neutrality and broadband regulation. So, Matt, let's start. The FCC adopted in order to restore net neutrality rules on April twenty fifth.
So let's start this votes and verdicts brief by just having you remind us what net neutrality is and what the fight here is all about.
Yeah, thanks, Jen. So, net neutrality is the idea that the broadmand companies who own the pipes that deliver you the Internet should be neutral with respect to the Internet
traffic that they carry. And by pipes, I mean that figuratively here we mean both the wired Internet and the wireless Internet that delivers to your home, to your mobile phone, and effectively, net neutrality means that your Internet service provider shouldn't be able to block or discriminate against some Internet traffic to make some parts of the Internet work better than others. They should be neutral. But really, this fight at the FCC is about more than just net neutrality.
It's really about jurisdiction. The fundamental question is whether the Federal Communications Commission should have the power to regulate broadband service at all. Because while it's clear that the FCC has jurisdiction over phone service and cable service and broadcast television. The Communications Act was written in nineteen thirty four and updated in nineteen ninety six before Broadman really took off.
So this whole fight is really not so much about net neutrality as it is about whether an old law can reach a new service, whether the FCC has the broad power to regulate what is the most important communications service that these companies sell today.
So I understand this isn't the first time the FCC has adopted net neutrality rules like this, and I believe the last time it did there was a challenge to the rules and the agency won in court. But this time you see an eighty percent chance that the FCC loses. Why is that?
That's right? So there have been multiple rounds of net neutrality litigation, and one of the most important ones involved the Obama administrations in Net Neutrality Order in twenty fifteen. In that decision, the FCC said broadband qualifies as as a telecommunications service under what's known as Title two of the Communications Act, and that section of the nineteen thirty four log gives the FCC very broad regulatory powers over
the service. The case was litigated at the d C Circuit here in Washington and in a two to one decision, the d C Circuit ruled the FCC had that power to bring broadband under the Communications Act under Title II. But while that was a huge win for the FCC, there was a very ominous sign that that also came out of that case. The DC Circuit refused to revisit
that decision on bank. But when it refused to do so, now Supreme Court Justice Brett Cavanaugh wrote a dissenting opinion, and in that opinion he said, for major agency rules like this, agencies like the SCC shouldn't get deference. Congress
must clearly grant them power to act. And five years later after that decision, Justice Judge Kavanaugh had become Justice Cavanaugh and the US Supreme Court, in a separate opinion involving the EPA, wrote an opinion solidifying what's now known as the major questions doctrine, and it cited Kavanaugh's opinion at the d C Circuit in this net neutrality case. So it's for that reason that I don't think the FCC, even though it won a big victory last time, I
don't think it can win anymore. It won before because the courts were forced to give deference to agencies on these questions, and now that doctrine's in serious trouble in part because of Judge and now Justice Kavanaugh's major questions doctrine.
So along those lines, another thing you wrote in your research was that the first development in the legal case didn't go well for the FCC. And I think you were referring to a lottery to decide which court would get the case first. Why didn't this go well for the FCC.
Yeah, that's right. So for certain orders from administrative agencies that apply nationwide like this, Congress created a process for a judicial lottery to determine which federal courts of appeal should hear the challenge. Basically, any court in which a suit is filed in the first ten days after this is published in the Federal Register gets a ticket in the lottery. That leads to a lot of strategic filing by parties to try to get a ticket for the
court that they prefer. And after that process played out here, the Sixth Circuit Court of Appeals in Cincinnati was selected to hear this case. And the reason I view that as sort of bad news for the FCC is that of the active judges on the Sixth Circuit. Six were selected by Democrats, ten were selected by Republicans, and this is an issue where Republican appointed judges tend to be tougher on the agencies. Democrat appointed judges tend to be
more sympathetic to regulation. So the FCC, aware of that, is now trying to ask the Sixth Circuit to send this case back to the DC Circuit where it won in twenty sixteen. And maybe that's possible, but I don't think the Sixth Circuit has to do that if it doesn't want to. It's purely a discretionary call. So this is a tough place to start the case for the FCC.
Okay, but the rules are supposed to go into effect on July twenty two, so I understand the companies are asking a stay of the rules before then. Do you think that request has a chance?
Yeah, So that's exactly right. On June tenth, the industry filed this motion with the Sixth Circuit asking them to hit pause on these rules, and they asked the court to rule on that by the middle of July, to give them time to go to the Supreme Court before that July twenty second date if they need to, and Ordinarily, I would say, look, this probably won't work. Most stay requests are denied. If you look at the history of net neutrality litigation, when parties tried to get stays, the
courts have denied them. So that's where you start. What's new is what I talked about earlier, and this Major Questions doctrine, which sort of kind of you know, really adds fire to the company's case here, and I think that could change the analysis. There's a real possibility that the court will hit to issue a stay before these rules can take effect. No matter what happens on the stay, though longer term, I think the FCC is in serious trouble.
Matt. Last question, and this is something that comes up with respect to everything in the legal and policy world these days. How will the November election impact this issue?
Yeah, So in this case, it's pretty easy to answer that question. When President Trump won in twenty sixteen, his FCC chairman, a Jeet Pie undid everything that the Obama FCC did on this totally reverse that the Tom Wheeler FCC order. So if President Trump wins again, expect that same process to play out. If President Biden wins, his FCC is going to keep these rules in place, and
it will be entirely up to the courts. If the courts strike the rules down, as I think is likely, then the hard question will be whether Democrats will support some sort of middle ground in Congress. For years, Congress has been unable to reach a consensus on how to resolve this issue. But if the FCC suffers the big defeat in court that we expect, that could be the catalyst to find some sort of middle ground to to
settle this long running issue. And I think it would be good news for the broadband providers because I don't think Congress would adopt a measure that is very disruptive to their business.
Matt, thank you for that excellent quick overview of your legal research on net neutrality and broadband regulation. That's today's Votes and Verdicts brief. For Matt's full report on the topic and all of our research, please visit bilaws on the Bloomberg terminal. Thanks for tuning in to Votes and Verdicts, and enjoy the rest of your day or evening.