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Worst Procedural Abuses of the Obama Era: Net Neutrality

Editor’s note: Open Market is publishing a new blog series this week on pressing issues in administrative law and regulatory policy, which we’ve titled “Worst Procedural Abuses of the Obama Era.” It includes contributions by Marc Scribner, Trey Kovacs, and William Yeatman.

Under the federal Administrative Procedure Act (APA), before an agency may issue a new rule, it must usually publish a notice of proposed rulemaking in the Federal Register and give the public an opportunity to comment on the proposed rule. 5 U.S.C. § 553(b)–(c). Then, assuming the agency decides to proceed with the rulemaking, it must consider any relevant materials submitted by persons who participated in the process before issuing a final rule. (As my colleague Marc Scribner recently explained on these pages, there are a few narrow exceptions to this requirement.)

What if an agency breaks the law and issues a rule without giving the public a meaningful chance to participate in the rulemaking process? In many cases, someone who is aggrieved by the rule will file a lawsuit challenging its legality, and the agency will have to explain itself to a federal court. If the court determines that the agency violated the APA, it is likely to vacate the rule and remand the matter back to the agency. For instance, in 1983, the U.S. Court of Appeals for the D.C. Circuit vacated an Environmental Protection Agency regulation limiting the lead content of leaded gasoline produced by certain refiners, because the agency set a standard without giving the public adequate notice.

When a court concludes that an agency has issued a rule without following the APA’s notice-and-comment requirement, it is unusual for the agency to have given the public no notice of the rule whatsoever. Rather, when agencies are found in violation of this requirement, it is usually because the agency issued a final rule that departed dramatically from its notice of proposed rulemaking. As a D.C. Circuit panel explained in a 2005 opinion, the APA bars agencies from using “the rulemaking process to pull a surprise switcheroo on regulated entities.” An agency may change course after proposing a rule, to be sure, but it must issue a further notice of proposed rulemaking before finalizing a rule that isn’t a “logical outgrowth” of its original proposal.

One of the most controversial rules an agency has promulgated during the Obama administration arguably ran afoul of the APA’s notice-and-comment process: the Federal Communications Commission’s “network neutrality” regulation, which the FCC proposed in May 2014 and finalized in March 2015. When the agency proposed this rule, it indicated that it planned to rely on rely on section 706 of the Telecommunications Act of 1996—in accordance with what FCC Chairman Tom Wheeler described as the “roadmap” offered by the D.C. Circuit’s 2014 opinion in Verizon v. FCC,  which invalidated a 2010 rule issued by the agency in the name of net neutrality.

But in late 2014, as the FCC was finalizing its net neutrality rule in the wake of Verizon, the White House conducted an “unusual, secretive effort” to induce the agency to take a different approach by reinterpreting Title II of the Communications Act to encompass broadband Internet access service providers. If a provider falls under Title II, it is regulated as a “common carrier” that the FCC may subject to a panoply of obligations ranging from price controls to privacy mandates. The FCC acquiesced to the White House’s demands, discarding the D.C Circuit’s so-called “roadmap” from Verizon.

At least the FCC mentioned in its proposed rule the possibility that it might reinterpret Title II, albeit in just three sentences of a 99-page document that tentatively concluded not to reinterpret Title II or impose a nondiscrimination mandate on mobile broadband providers. But reinterpreting the Communications Act to treat broadband providers as common carriers isn’t the only aspect of the FCC’s 2015 rule that departed from its 2014 proposal. The agency also concluded that mobile broadband service is “interconnected with the public switched network,” which empowers the FCC to regulate providers of this service as common carriers. Additionally, the FCC’s final rule created a case-by-case “no-unreasonable interference/disadvantage” standard with respect to Internet service providers’ network management practices. Yet the FCC failed to notify the public that it planned to rethink its proposed rule; instead, the agency simply changed its mind on several key issues without giving interested parties a heads up that it was reconsidering the core principles outlined in its proposed rule.

Unfortunately, in the recent 2-1 panel decision in U.S. Telecom Association v. FCC, the D.C. Circuit rejected a challenge to the FCC’s rules that alleged, among other things, that the agency failed to give adequate notice pursuant to the APA’s requirements. The court essentially reasoned that because the FCC indicated in its proposed rule that it might reinterpret Title II, despite its “tentative” conclusion not to do so, commenters were on notice that the agency was considering applying common carrier regulations to broadband providers, including such unspoken obligations as the inclusion of wireless carriers in such a regime and the imposition of a general conduct standard as a catch-all for provider practices.

But the legal battle over the FCC’s rule is not over—several parties that challenged the agency’s rules have publicly announced their intent to appeal the D.C. Circuit panel decision, and it’s realistic to expect that the dispute will be reheard en banc before the full Court of Appeals and/or reviewed by the U.S. Supreme Court. Hopefully, the courts will ultimately force the agency to respect the APA and conduct another round of rulemaking before issuing any net neutrality rule—however ill-advised such regulation may be as a matter of public policy.