Speaker 1: That neutrality is the issue that won't go away. What
Speaker 1: is this legal fight about? Who is likely to win?
Speaker 1: And when will it all play out? This is a
Speaker 1: Votes in Verdicts Brief.
Speaker 2: Welcome to this Votes and Verdicts podcast hosted by Bloomberg Intelligence,
Speaker 2: part of Bloomberg's Research department, comprised of five hundred analysts
Speaker 2: and strategists working across all major world markets. Our coverage
Speaker 2: includes over two thousand equities and credits, as well as
Speaker 2: outlooks on more than ninety industries and one hundred market indices, currencies,
Speaker 2: and commodities. In this podcast series, we talk about the
Speaker 2: intersection of business policy and law. My name is Jenniferree,
Speaker 2: and I'm a senior litigation analyst with Bloomberg Intelligence covering antitrust.
Speaker 1: And I'm Matt Schuttenhelm, an analyst covering US litigation and
Speaker 1: policy in the TMT space.
Speaker 2: Our Votes and Verdicts Brief series highlights one of our
Speaker 2: research reports on the Bloomberg terminal, giving listeners a quick
Speaker 2: takeaway to help grasp the key litigation or policy topic
Speaker 2: covered in that research. Today is our first one, and
Speaker 2: my colleague Matt is going to talk about net neutrality
Speaker 2: and broadband regulation. So, Matt, let's start. The FCC adopted
Speaker 2: in order to restore net neutrality rules on April twenty fifth.
Speaker 2: So let's start this votes and verdicts brief by just
Speaker 2: having you remind us what net neutrality is and what
Speaker 2: the fight here is all about.
Speaker 1: Yeah, thanks, Jen. So, net neutrality is the idea that
Speaker 1: the broadmand companies who own the pipes that deliver you
Speaker 1: the Internet should be neutral with respect to the Internet
Speaker 1: traffic that they carry. And by pipes, I mean that
Speaker 1: figuratively here we mean both the wired Internet and the
Speaker 1: wireless Internet that delivers to your home, to your mobile phone,
Speaker 1: and effectively, net neutrality means that your Internet service provider
Speaker 1: shouldn't be able to block or discriminate against some Internet
Speaker 1: traffic to make some parts of the Internet work better
Speaker 1: than others. They should be neutral. But really, this fight
Speaker 1: at the FCC is about more than just net neutrality.
Speaker 1: It's really about jurisdiction. The fundamental question is whether the
Speaker 1: Federal Communications Commission should have the power to regulate broadband
Speaker 1: service at all. Because while it's clear that the FCC
Speaker 1: has jurisdiction over phone service and cable service and broadcast television.
Speaker 1: The Communications Act was written in nineteen thirty four and
Speaker 1: updated in nineteen ninety six before Broadman really took off.
Speaker 1: So this whole fight is really not so much about
Speaker 1: net neutrality as it is about whether an old law
Speaker 1: can reach a new service, whether the FCC has the
Speaker 1: broad power to regulate what is the most important communications
Speaker 1: service that these companies sell today.
Speaker 2: So I understand this isn't the first time the FCC
Speaker 2: has adopted net neutrality rules like this, and I believe
Speaker 2: the last time it did there was a challenge to
Speaker 2: the rules and the agency won in court. But this
Speaker 2: time you see an eighty percent chance that the FCC loses.
Speaker 2: Why is that?
Speaker 1: That's right? So there have been multiple rounds of net
Speaker 1: neutrality litigation, and one of the most important ones involved
Speaker 1: the Obama administrations in Net Neutrality Order in twenty fifteen.
Speaker 1: In that decision, the FCC said broadband qualifies as as
Speaker 1: a telecommunications service under what's known as Title two of
Speaker 1: the Communications Act, and that section of the nineteen thirty
Speaker 1: four log gives the FCC very broad regulatory powers over
Speaker 1: the service. The case was litigated at the d C
Speaker 1: Circuit here in Washington and in a two to one decision,
Speaker 1: the d C Circuit ruled the FCC had that power
Speaker 1: to bring broadband under the Communications Act under Title II.
Speaker 1: But while that was a huge win for the FCC,
Speaker 1: there was a very ominous sign that that also came
Speaker 1: out of that case. The DC Circuit refused to revisit
Speaker 1: that decision on bank. But when it refused to do so,
Speaker 1: now Supreme Court Justice Brett Cavanaugh wrote a dissenting opinion,
Speaker 1: and in that opinion he said, for major agency rules
Speaker 1: like this, agencies like the SCC shouldn't get deference. Congress
Speaker 1: must clearly grant them power to act. And five years
Speaker 1: later after that decision, Justice Judge Kavanaugh had become Justice
Speaker 1: Cavanaugh and the US Supreme Court, in a separate opinion
Speaker 1: involving the EPA, wrote an opinion solidifying what's now known
Speaker 1: as the major questions doctrine, and it cited Kavanaugh's opinion
Speaker 1: at the d C Circuit in this net neutrality case.
Speaker 1: So it's for that reason that I don't think the FCC,
Speaker 1: even though it won a big victory last time, I
Speaker 1: don't think it can win anymore. It won before because
Speaker 1: the courts were forced to give deference to agencies on
Speaker 1: these questions, and now that doctrine's in serious trouble in
Speaker 1: part because of Judge and now Justice Kavanaugh's major questions doctrine.
Speaker 2: So along those lines, another thing you wrote in your
Speaker 2: research was that the first development in the legal case
Speaker 2: didn't go well for the FCC. And I think you
Speaker 2: were referring to a lottery to decide which court would
Speaker 2: get the case first. Why didn't this go well for
Speaker 2: the FCC.
Speaker 1: Yeah, that's right. So for certain orders from administrative agencies
Speaker 1: that apply nationwide like this, Congress created a process for
Speaker 1: a judicial lottery to determine which federal courts of appeal
Speaker 1: should hear the challenge. Basically, any court in which a
Speaker 1: suit is filed in the first ten days after this
Speaker 1: is published in the Federal Register gets a ticket in
Speaker 1: the lottery. That leads to a lot of strategic filing
Speaker 1: by parties to try to get a ticket for the
Speaker 1: court that they prefer. And after that process played out here,
Speaker 1: the Sixth Circuit Court of Appeals in Cincinnati was selected
Speaker 1: to hear this case. And the reason I view that
Speaker 1: as sort of bad news for the FCC is that
Speaker 1: of the active judges on the Sixth Circuit. Six were
Speaker 1: selected by Democrats, ten were selected by Republicans, and this
Speaker 1: is an issue where Republican appointed judges tend to be
Speaker 1: tougher on the agencies. Democrat appointed judges tend to be
Speaker 1: more sympathetic to regulation. So the FCC, aware of that,
Speaker 1: is now trying to ask the Sixth Circuit to send
Speaker 1: this case back to the DC Circuit where it won
Speaker 1: in twenty sixteen. And maybe that's possible, but I don't
Speaker 1: think the Sixth Circuit has to do that if it
Speaker 1: doesn't want to. It's purely a discretionary call. So this
Speaker 1: is a tough place to start the case for the FCC.
Speaker 2: Okay, but the rules are supposed to go into effect
Speaker 2: on July twenty two, so I understand the companies are
Speaker 2: asking a stay of the rules before then. Do you
Speaker 2: think that request has a chance?
Speaker 1: Yeah, So that's exactly right. On June tenth, the industry
Speaker 1: filed this motion with the Sixth Circuit asking them to
Speaker 1: hit pause on these rules, and they asked the court
Speaker 1: to rule on that by the middle of July, to
Speaker 1: give them time to go to the Supreme Court before
Speaker 1: that July twenty second date if they need to, and Ordinarily,
Speaker 1: I would say, look, this probably won't work. Most stay
Speaker 1: requests are denied. If you look at the history of
Speaker 1: net neutrality litigation, when parties tried to get stays, the
Speaker 1: courts have denied them. So that's where you start. What's
Speaker 1: new is what I talked about earlier, and this Major
Speaker 1: Questions doctrine, which sort of kind of you know, really
Speaker 1: adds fire to the company's case here, and I think
Speaker 1: that could change the analysis. There's a real possibility that
Speaker 1: the court will hit to issue a stay before these
Speaker 1: rules can take effect. No matter what happens on the stay,
Speaker 1: though longer term, I think the FCC is in serious trouble.
Speaker 2: Matt. Last question, and this is something that comes up
Speaker 2: with respect to everything in the legal and policy world
Speaker 2: these days. How will the November election impact this issue?
Speaker 1: Yeah, So in this case, it's pretty easy to answer
Speaker 1: that question. When President Trump won in twenty sixteen, his
Speaker 1: FCC chairman, a Jeet Pie undid everything that the Obama
Speaker 1: FCC did on this totally reverse that the Tom Wheeler
Speaker 1: FCC order. So if President Trump wins again, expect that
Speaker 1: same process to play out. If President Biden wins, his
Speaker 1: FCC is going to keep these rules in place, and
Speaker 1: it will be entirely up to the courts. If the
Speaker 1: courts strike the rules down, as I think is likely,
Speaker 1: then the hard question will be whether Democrats will support
Speaker 1: some sort of middle ground in Congress. For years, Congress
Speaker 1: has been unable to reach a consensus on how to
Speaker 1: resolve this issue. But if the FCC suffers the big
Speaker 1: defeat in court that we expect, that could be the
Speaker 1: catalyst to find some sort of middle ground to to
Speaker 1: settle this long running issue. And I think it would
Speaker 1: be good news for the broadband providers because I don't
Speaker 1: think Congress would adopt a measure that is very disruptive
Speaker 1: to their business.
Speaker 2: Matt, thank you for that excellent quick overview of your
Speaker 2: legal research on net neutrality and broadband regulation. That's today's
Speaker 2: Votes and Verdicts brief. For Matt's full report on the
Speaker 2: topic and all of our research, please visit bilaws on
Speaker 2: the Bloomberg terminal. Thanks for tuning in to Votes and Verdicts,
Speaker 2: and enjoy the rest of your day or evening.