Federal communications ­regulators stand poised to suffer defeat — for the second time — in the government's effort to impose rules that address how broadband Internet service providers prioritize traffic on their networks.

Last week, in one of the biggest pending fights in the telecommunications industry, a lawyer for Verizon Communications Inc. urged a federal appeals panel in Washington to declare unconstitutional a government scheme to promote an open Internet.

Verizon's lawyer, Wiley Rein ­partner Helgi Walker, told a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit that the Federal Commun­ications Commission (FCC) overstepped its authority in adopting so-called "net neutrality" rules in December 2010 to try to prohibit barriers to infrastructure development.

Decisions about whether and how to regulate broadband service providers, Walker argued, are for Congress to make. Walker, co-chairwoman of Wiley's appellate practice, said it was "highly unlikely" that Congress would have delegated authority to the FCC to set broadband rules in such an "opaque" and "convoluted" manner.

"It is not up to the FCC to decide those important and hotly debated questions entirely on its own," Walker said in court. "But that is what happened here."

D.C. Circuit judges Judith Rogers and David Tatel heard the closely watched case with Senior Judge Laurence Silberman. The hearing, which lasted for two hours — much longer than most D.C. Circuit cases — tested the scope of FCC authority.

Tatel more than once expressed puzzlement about why the communications commission adopted the broadband rules in the first place. Silberman, basing his observation on his colleagues' questions, called the rules "dubious" at one point. The court, Rogers said, is looking at the very broad authorization the commission contends it enjoys to regulate competition in the telecommunications market.

At one point, Tatel read from relevant FCC language about how the commission "shall encourage," through regulation, competition in the telecommunications market. "That's exactly what the commission says it's doing — preventing the creation of barriers to infrastructure investment," Tatel told Walker.

Jenner & Block partner Samuel Feder, who leads the firm's communications practice, said the Verizon case has potentially significant consequences for the ability of the FCC to regulate the Web at a time when "everything is becoming an Internet service."

"The case has big implications for the cable and phone companies, as the FCC's rules prohibit them from charging content providers for faster access to Internet customers­ — a potentially important source of business," Feder said. "While predicting outcomes from oral arguments is risky, it appears likely the court will strike down the FCC's prohibition on pay-for-priority."


In 2010, a different D.C. Circuit panel, in Comcast Corp. v. FCC, concluded that the commission lacked authority to regulate Internet access. The appeals court — Tatel was on that panel — said the FCC's administrative enforcement order against Comcast wasn't tied to any specific grant of authority from Congress.

In that case, the FCC said Comcast, also represented by Walker, violated open Internet guidelines by slowing down the Internet speed of users of certain peer-to-peer applications that allow sharing of large files, including video.

Following the D.C. Circuit's decision in the Comcast dispute, the FCC voted, 3-2, to adopt the Open Internet order. The rules prohibit service providers from blocking access to lawful Internet content, applications and services; the rules also said broadband providers "shall not reasonably discriminate in transmitting lawful network traffic" to customers.The FCC and the U.S. Justice Depart­ment contend the commission "promul­gated high-level rules to ensure that consumers retain the ability to access Internet sites of their choosing."

At issue are regulations that target the ability of broadband providers — for instance, Verizon — from blocking or degrading the Internet service of subscribers who access certain "edge" providers — companies such as Amazon, Twitter, Netflix and The Wall Street Journal that provide content but not Internet service itself.

"The threat of what Verizon and other parties could do was, in fact, a barrier to infrastructure investment," FCC general counsel Sean Lev insisted at the D.C. Circuit hearing on September 9.

In court papers, FCC lawyers wrote that "by keeping barriers to entry low, openness enables anyone — from large corporations, to start-up companies, to college students — to create innovative applications."

The new appeal, Verizon's lawyers wrote in their D.C. Circuit brief, "challenges the FCC's second attempt to conjure a role for itself with respect to regulation of the Internet — in particular, broadband Internet access service. Here again, the FCC has acted without statutory authority to insert itself into this crucial segment of the American economy, while failing to show any factual need to do so."

Verizon's lawyers said in their brief that the FCC's order imposed "dramatic new restrictions on broadband Internet access service providers." The commission, the challengers argued, adopted an order "without any evidence of a systematic problem in need of a solution." The challengers contended in their brief that the regulations "violate the First Amendment by stripping them of control over the transmission of speech on their networks." Verizon's lawyers described broadband networks as "the modern-day microphone by which their owners engage in First Amendment speech." At the D.C. Circuit hearing, Steptoe & Johnson LLP partner Pantelis Michal­opoulos argued for groups that included the Open Internet Coalition and Vonage Holdings Corp. (Members of the Open Internet Coalition include Google Inc. and Facebook Inc.)

Michalopoulos, who leads Steptoe's telecommunications, Internet and media practice, said the FCC "reasonably concluded" a fear of discrimination could be a barrier to infrastructure investment. Investment in broadband access, Michalopoulos wrote in a brief, is needed to "widen the gate."

"Such investment would be significantly hampered, however, if the current gatekeepers could lessen demand for the Internet experience by cherry-picking favorites among the immense Internet ecosystem," he wrote.

Contact Mike Scarcella at mscarcella@alm.com.