6/28/2011 5:59 AM Nice Work If You Can Get It: The FCC in the Digital Age by SUSAN P. CRAWFORD* [table of contents] [abstract] Introduction In the last two years, the FCC has initiated two key rulemaking proceedings that address the digital age: first, the broadcast flag proceeding, which focuses on the interfaces between machines that manipulate digital content and the internet;1 second, the IP-enabled services rulemaking,2 which concerns applications and services that use the Internet Protocol.3 These two proceedings provide both useful case studies of the actions of an independent agency confronted with disruptive change, and larger lessons about the changing meaning of agency capture in the 21st century. Parts I and II of this Article tell the political, legal, and technical * Assistant Professor, Cardozo School of Law. 1 In the Matter of Digital Broadcast Content Protection, MB Docket No. 02-230 Report and Order and Further Notice of Proposed Rule, FCC No. 03-273 (rel. Nov. 4, 2003) ("Order"). 2 In the Matter of IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, FCC No. 04-28 (rel. Mar. 10, 2004) ("IP NPRM"). 3 The Intternet Protocol (or "IP") is "the protocol used to route a data packet from its source to its destination via the Internet." Red Hat glossary, available at http://www.redhat.com/docs/glossary/. 1 6/28/2011 5:59 AM stories of these two proceedings. The broadcast flag proceeding arose from the content industry's frustration at not being able to constrain online transmission of digital versions of their high-quality copyrighted works. The proposed rule aims to ensure that the design of the interfaces between devices that touch this content, on the one hand, and the internet, on the other, will be subject to the control of the FCC -- that way, public availability of copyrighted digital files will be less likely. The IP-enabled services rulemaking arose from a variety of concerns about communications moving online. The FCC is used to regulating telephone systems, but the world is turning towards alternate, online ways of communicating. FCC's concerns included whether easy law enforcement access to online communications would be available4 as well as other "social policy"5 issues: whether access to the disabled was available online, whether emergency services would be accessible by way 4 On March 10, 2004, the same day that the FCC issued the IP NPRM, the Federal Bureau of Investigation (FBI), the U.S. Department of Justice and the U.S. Drug Enforcement Agency filed a joint petition for rulemaking with the FCC arguing that broadband access and broadband telephony are subject to the Communications Law Enforcement Act ("CALEA"), and asking that the FCC confirm that carriers bear sole financial responsibility for the costs of CALEA implementation. In the Matter of United States Department of Justice, Federal Bureau of Investigation and Drug Enforcement Administration Joint Petition for Rulemaking to Resolve Various Outstanding Issues Concerning the Implementation of the Communications Assistance for Law Enforcement Act (Mar. 10, 2004), available at http://www.askcalea.net/docs/20040310.calea.jper.pdf ("Joint Petition"). On [August 4, 2004] the FCC issued an NPRM in response to the Joint Petition ("CALEA NPRM"). Although law enforcement set of concerns dealt with in the CALEA NPRM are not formally part of the IP-enabled services rulemaking, the two proceedings are closely linked and are being coordinated by the FCC. This Article considers them together. 5 The IP NPRM focuses on questions relating to emergency services, access by individuals with disabilities, consumer protection, and universal service. The FCC uses the term "social policy concerns" as shorthand for this list of issues plus the issues raised in the CALEA NPRM. See IP NPRM at 25. See also accompanying Statement by Commr. Abernathy: "Notwithstanding my interest in maintaining a light touch, I am committed to ensuring that our regulatory approach [to IP- enabled services] meets certain critical social policy objectives. As most policymakers at the federal and state level have recognized, we will need to find solutions to guarantee access to 911 services, the ability of law enforcement agencies to conduct surveillance, the preservation of universal service, and access by persons with disabilities. Some of these goals may well be achieved without heavy-handed regulation, but I am willing to support targeted governmental mandates where necessary.." 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 3 of E911 services online, and how "universal service"6 would be funded in an era of decreasing reliance on traditional telephone systems. In the digital world, all streams of bits look alike. It is impossible to say which bit is part of a "voice" service and which is merely transmitting data. Thus, in the IP NPRM, the FCC took on the question of whether all Internet Protocol enabled services (including email, instant messaging, and the domain name system) should be subject to "social policy" regulation. Part III examines the statutory jurisdiction of the FCC in both the broadcast flag and IP-enabled services contexts. In both situations, the FCC is relying on common-law "ancillary" jurisdiction, stemming from Title I of the Telecommunications Act,7 as the source of its powers. Court decisions make clear that FCC's ancillary jurisdiction is limited to acts that are necessary to ensure the achievement of FCC's statutory responsibilities, and FCC may not have been delegated legislative rulemaking authority by Congress to issue rules in either of these areas. Congress has, moreover, been quite active in reviewing and rejecting broader expressly internet- related jurisdiction for the FCC. It may be that FCC does not have statutory jurisdiction to impose either the flag rules or "social policy" rules stemming from the IP NPRM. Part IV provides guidance for courts' examinations of FCC's actions in these two proceedings. Different aspects of Chevron deference come into 6 "Universal service" is a shorthand designation for a very complicated set of implicit and explicit subsidies initiated in the 1930s that attempt to provide phone service to everyone in the US, regardless of distance from central switches or ability to pay. As the FCC puts it: "The goals of Universal Service, as mandated by the 1996 Act, are to promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas. In addition, the 1996 Act states that all providers of telecommunications services should contribute to Federal universal service in some equitable and nondiscriminatory manner; there should be specific, predictable, and sufficient Federal and State mechanisms to preserve and advance universal service; all schools, classrooms, health care providers, and libraries should, generally, have access to advanced telecommunications services; and finally, that the Federal-State Joint Board and the Commission should determine those other principles that, consistent with the 1996 Act, are necessary to protect the public interest." http://www.fcc.gov/wcb/universal_service/welcome.html. 7 Telecommunications Act of 1996, Pub. LA. No. 104-104, 110 Stat. 56 (1996). 6/28/2011 5:59 AM play in these two areas.8 First, in the broadcast flag setting, the Supreme Court's holding in United States v. Mead9 is instructive. Because no clear delegation of legislative rulemaking authority has occurred, Chevron deference is not appropriate: FCC is asserting jurisdiction over new territory, not construing an ambiguity in its enabling statute. Moreover, where the consequences of a delegation are significant (as they unquestionably are in the flag setting), silence or even Congressional ambiguity arguably should not be taken as evidence that a delegation has occurred. Such silence should instead be understood as a hint that Congress would not have wanted the agency to act. Also, the flag rulemaking seems to be primarily about copyright protection, and thus is properly within the province of the Copyright Office (or Congress) rather than the FCC. Second, in the IP-enabled services rulemaking, FCC is reading its statute in much the same way that the FDA read its enabling Act in attempting to regulate cigarettes -- and FDA v. Brown & Williamson10 provides a useful precedent in examining the FCC's actions. Although the broad language of the Telecommunications Act arguably covers every service that uses communication networks, such an assertion may both go too far and run counter to other Congressional statements -- such as the statement in the Telecommunications Act that the internet should remain "unfettered" by state or federal regulation.11 The "social policy" rules suggested by the FCC for IP-enabled services -- access to law enforcement, contribution to universal service, access to the disabled, provision of E911 services, privacy rules -- would treat these services as common carriers. Part V examines the question of agency capture in the context of these two case studies. The theory of capture is currently viewed as an obsolete subset of general public choice theory.12 But in both of these two settings, the most likely explanation for what has happened is that the FCC has been urged by specific, powerful industries to issue rules affecting industries in new areas that are not clearly within the purview of the agency. In the 8 Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). 9 US v. Mead Corp., 533 U.S. 218 (2001). 10 FDA v. Brown & Williamson, 529 US 120 (2000) 11 47 U.S.C. Sec. 230(b)(2): "It is the policy of the United States. . . (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation." 12 See, e.g., Thomas Merrill, Capture Theory and the Courts: 1967-1983, 72 Chi.- Kent L. Rev. 1039, 1069 (1997): "[M]ature public choice theory, as it emerged in economics and political science departments in the 1980's, works with a far more general model of governmental action [than capture theory did]." 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 5 broadcast flag arena, the content industry (having threatened the success of the "digital transition" and thereby captured the attention of the FCC's Media Bureau) is urging the FCC to create rules that will have the effect of, among other things, shifting costs to the information technology sector of the U.S. economy. In the IP-enabled services world, the telephone companies are asking for regulation of service providers who are not usually within the FCC's ambit, and hoping that the new rules will have the effect of imposing costs on online businesses. The law enforcement community has also had a very significant cost-shifting impact in this area. These two cases show that we should revive our understanding of agency capture for the 21st century. Capture may lead to overassertions of jurisdiction by independent agencies. The FCC is at a digital era crossroads. It is an agency that was created to manage scarce spectrum and interconnection between networks. It is now attempting to make rules about online issues that (a) have nothing to do with scarcity and (b) for which all the interconnection issues have been solved without the FCC's involvement. It is under enormous pressure from both Hollywood studios and the FBI. It is asserting power to make rules that potentially constrain the machines that connect to the internet and the software applications that are used by those machines, arguably without an express mandate from Congress to do either of these things. Its story, as seen through the lense of these two rulemakings, can teach us a great deal about jurisdiction, power, and capture in an era of dynamic change. I. BROADCAST FLAG BACKGROUND A. Technical The broadcast flag is beautifully and effectively named, because it is neither about broadcast nor limited to the waving of a patriotic "flag." Indeed, those who learn about the broadcast flag scheme quickly forget that it is focused on protecting digital television broadcasts and speak generally about the protection of digital content. And the "flag" is, in a sense, the least important part of the entire scheme. Let's begin at the beginning. The flag is a set of bits embedded in a digital stream (a standard adopted by the Advanced Television Systems Committee, or ATSC) that signals "the bits following this set of bits are to 6/28/2011 5:59 AM be protected."13 The flag is itself a very simple signal. It is the implementation of the flag that matters. The broadcast flag rule,14 distilled to its essence, is a mandate that all consumer electronics manufacturers and information technology companies ensure that any device that touches digital television content encrypt that content and protect it against unauthorized onward distribution. In order to make this happen, the FCC has established a new and extraordinarily broad15 regulatory regime that mandates the use of "authorized" content protection technologies by virtually every consumer electronics product and computer product -- including digital television sets, digital cable set-top boxes, direct broadcast satellite ("DBS") receivers, personal video recorders (PVRs), DVD recorders, D-VHS recorders, and computers with tuner cards.16 (A full-featured tuner card 13 Advanced Television Systems Committee, "ATSC A/65B: Program and System Information Protocol for Terrestrial Broadcast and Cable," (March 18, 2003), available at http://www.atsc.org/standards/a_65b.pdf. This standard defines the way that broadcasters must include program name and content information in TV broadcasts. At p. 79, the ATSC standard defines a "redistribution control" parameter. This is the "broadcast flag" to which receivers of television signals, including PCs with tuner cards, must adhere. 14 Digital Broadcast Content Protection, 69 Fed. Reg. 2,688 (Jan. 20, 2004)(codified at 47 C.F.R. pt. 73, 76). 15 The MPAA asserts that the coverage of the flag rule is narrow: "The Broadcast Flag solution regulates a minimum number of products. Only consumer products containing modulators or demodulators [a demodulator takes a raw television signal and renders it into human-visible form] would be directly subject to FCC requirements necessary for the protection of unencrypted digital terrestrial broadcast content against unauthorized redistribution. These devices include DTV receivers and demodulator cards for PCs. Other "downstream" devices would have to substantially comply with the terms of license agreements with authorized digital output technology. . . . The FCC would also regulate a limited number of products that are capable of receiving protected but unprocessed content, or digital broadcast content passed in a certain way within a computer." Copyright Piracy Prevention and the Broadcast Flag: Oversight Hearing Before the House Comm. on the Judiciary, Subcommittee on the Courts, the Internet, and Intellectual Property, 108th Cong. (2003) (testimony of Fritz Attaway, Executive Vice President for Government Relations and Washington General Counsel, Motion Picture Association of America), available at http://www.house.gov/judiciary/attaway030603.htm. In fact, the rule will affect all devices that might want to handle digital television (DTV) content -- not just TV receivers, but PCs, storage devices, recording devices, etc. 16 The rule provides that a digital TV demodulator manufactured after July 2005 cannot lawfully send unprotected (unencrypted) content to any output, except in a set of specific cases: (1) as analog output (at least until the FCC closes the "analog hole," see section ___ below); (2) through specific digital output formats which 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 7 makes a computer into a digital television, PVR, and VCR in one.) Specifically, the order requires that all devices or software manufactured after July 2005 that can receive TV signals (including PCs equipped with a tuner card) (1) check for the presence of the flag, (2) encrypt all flagged content using "authorized technologies"; (3) store and record flagged content using "authorized technologies"; and (4) allow transmissions through digital interfaces (and only protected digital interfaces) only to other devices that have an approved copy-protection system installed.17 Until the FCC can settle on a new regime for approval of "authorized" technologies, it itself will decide which copy protection technologies manufacturers are allowed to use.18 As of August 2004, it appeared that any technology that allowed transmission of content over the public internet (no matter how secure and limited such a transmission was) would not pass muster with the FCC,19 and many proposed new uses of digital television content had been blocked by this process.20 B. Political must maintain the presence of the broadcast flag and are protected by an "Authorized Digital Output Protection Technology;" or, (3) in encrypted form, to devices that also follow the broadcast flag rules. Order at 40. 17 Id. 18 In the Order, the Commission amended Part §73.9008 of the Code of Federal Regulations. This amendment established a process for Interim Approval of Authorized Digital Output Protection Technologies and Authorized Recording Methods. Order at 43. The Commission established this interim process because it was dissatisfied with the criteria for approval of content protection technologies that had been proposed by the Motion Picture Association of America and the 5C companies -- some of which included the studios as approval-granters for technologies. Order at 25. The Commission stated that while it sought additional comment on this issue through a Further Notice of Proposed Rulemaking, it recognized that some technologies must be approved in the meantime so manufacturers can produce flag-compliant devices. Order at 26. Accordingly, the Commission established an "interim procedure" to be run by the FCC itself "whereby proponents of a particular content protection or recording technology can certify to the Commission that such technology is appropriate for use in Demodulator Products to give effect to the ATSC flag, subject to public notice and objection." Order at 26. On March 17, 2004, the FCC released Public Notice DA 04-715 pursuant to §47 C.F.R. §§ 73.9008(b). This Public Notice identified certifications for approval received by the Commission under the interim approval process and initiated a twenty-day period for comments or oppositions. 19 Center for Democracy & Technology: All Eyes on TiVo: The Broadcast Flag and the Internet (Jul. 26, 2004), available at http://www.cdt.org/copyright/ 20040726tivoflag.pdf . 20 tony footnote. 6/28/2011 5:59 AM Beginning in 1987, the FCC began work on shepherding "advanced television" systems using digital signals into general use. The story of the Grand Alliance (AT&T (now Lucent), General Instrument Corporation, Massachusetts Institute of Technology (MIT), Philips Electronics North America Corporation, David Sarnoff Research Center, Thomson Consumer Electronics, and Zenith Electronics Corporation) and their work to establish a high-definition digital television (HDTV) standard for approval by the FCC and Congress has been told elsewhere.21 In the 1996 Telecommunications Act, the FCC adopted the DTV standard "for the transmission of digital television" but did not impose any mandate on consumer electronics manufacturers to ensure that manufactured sets were able to receive a digital signal.22 The FCC then allotted DTV channels to incumbent broadcasters.23 (This spectrum was granted to the broadcasters in addition to the analog spectrum that they were already using.) To further the digital transition, as this whole process came to be called, the FCC established a schedule for digital television stations to be built and a target date of 2006 for broadcasters' analog spectrum to be returned (and for analog broadcasts to stop).24 In the Balanced Budget Act of 1997, Congress clarified that broadcasters do not have to give back the analog spectrum they use until 85 percent of the television households in their market are 21 Joel Brinkley, Defining Vision: The Battle for the Future of Television (Harcourt Publishers LTD 1997). 22 In re Advanced Television Systems and Their Impact Upon the Existing Television Broadcast Service, MM Docket No. 87-268, Fourth Report and Order, FCC 96-493, at ¶¶ 1-2 & App. A (rel. Dec. 27. 1996). In 2002, relying on the All Channel Receiver Act ("ACRA") (described infra pp. __, nn) the Commission adopted a DTV tuner mandate. 23 Section 201 of the Telecommunications Act of 1996 provides, inter alia, that "[i]f the Commission determines to issue additional licenses for advanced television services, the Commission ... should limit the initial eligibility for such licenses to persons that, as of the date of such issuance, are licensed to operate a television broadcast station or hold a permit to construct such a station." Telecommunications Act of 1996, 47 U.S.C. § 201 (1996), available at http://www.fcc.gov/Reports/tcom1996.pdf. See also In the matter of Advanced Television Systems and Their Impact Upon the Existing Television Broadcast Service, Fifth Report and Order, MM Docket No. 87-268, 12 FCC Rcd. 12809 (1997). The Consumers Electronic Association has characterized this move as a "gift to the broadcasters of billions in public spectrum." DMN Shopper, "CEA Refutes NAB Spin On DTV Tuner Integration Debate: Consumer Association Asserts Consumer Demand Drives Market, Not Government Mandates," available at http://www.hdtvbuyer.com/articles/viewarticle.jsp?id=12101. 24 See In re Advanced Television Systems and Their Impact upon the Existing Television Broadcast Service, 12 F.C.C.R. 12,809, 12,850 ¶ 99 (1997) (Fifth Report and Order). 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 9 capable of receiving digital broadcasts, using a digital TV set or a digital- to-analog converter box.25 Congress also stated that "[a] television broadcast license that authorizes analog television service may not be renewed . . . for a period that extends beyond December 31, 2006."26 Because the DTV transition and the return of the analog spectrum depends on penetration of DTV sets (or converters) in the population, it is is essential that consumers actually buy these sets. The FCC originally hoped that market forces would drive purchases of DTV-tuner-containing devices, but as of 2001 the Commission found that "DTV receivers are not yet available in the market in large quantities, and certainly not in sufficient volume to support a rapid transition to an all-digital broadcast television service."27 Additionally, prices of these tuners remained high, and many manufacturers of televisions were not building them into their sets.28 In August 2002, the FCC issued its Digital Tuner Order, directing that, on a phased-in basis starting in July 2004, all televisions sold in the United States contain a digital tuner.29 The Commission cited the All Channel Receiver Act30 as authority for its Order, and the D.C. Circuit agreed that this statute explicitly devolved to FCC the power to require televisions to include digital tuners.31 Much of the energy behind the broadcast flag rule comes from the "digital transition" I have just described. At the end of the DTV transition, which is currently scheduled for December 31, 2008, broadcasters must relinquish one of their two channels. The FCC will auction licenses for this analog spectrum, with the proceeds going to the federal government. Congress has been assuming in its budgeting process that revenues from the resulting spectrum will be more than $6 billion. Thus, there is tremendous pressure to complete the DTV transition. 25 Balanced Budget Act of 1997, §3003 (amending §309(j) of the Communications Act). 26 47 U.S.C. § 309(j)(14)(A). The actual switch-over date (when analog TVs will no longer work) will likely be revised to 2009. Hollywood Reporter, Feds: No analog TV by '09 (Apr. 15, 2004), available at http://www.hollywoodreporter.com/thr/article_display.jsp?vnu_content_id=10004 87387. The 85% measure has been adjusted to include DBS and cable subscribers, even if the television sets used by these subscribers are not capable of receiving digital signals. Id. 27 In re Review of the Commission’sRules and Policies Affecting the Conversion to Digital Television, 16 F.C.C.R. 5946, 5985 (2001). 28 Id. 29 In re Review of the Commission’s Rules and Policies Affecting the Conversion to Digital Television, 17 F.C.C.R. 15,978, 15,996 (2002) ("Digital Tuner Order"). 30 47 U.S.C. § 303(s) (enacted 1962) 31 Consumer Electronics Ass'n v. FCC, 347 F.3d 291 (D.C. Cir. 2003). 6/28/2011 5:59 AM In the meantime, the content industry has noticed the online piracy suffered by the music industry, and is understandably anxious to do whatever it can to protect its future profits. The content industry makes the following argument: 1. Whether or not the digital transition occurs depends on whether people buy digital televisions. 2. People will not buy digital televisions unless there is high-quality content made available via broadcast.32 3. We will not make high-quality content available via television broadcast unless the broadcast flag system, controlling unauthorized onward transmission of digital broadcast material, is put in place. We do not want to see users trading our high-quality files online.33 4. If we do not make high-quality content available for broadcast, all the "good" content will go to cable and satellite, and broadcast television will be left a wasteland of reality TV shows, violent local news, and sports broadcasts. 5. So the FCC had better put in place the broadcast flag system, or broadcast television "as we know it" will cease to exist.34 32 Because more than 85% of consumers subscribe to cable or satellite systems, and do not receive over-the-air broadcasts, see MediaWeek.com, Direct Broadcast Satellite Gains Users, Cable Wanes, April 17, 2004, avaiable at http://www.mediaweek.com/mediaweek/headlines/article_display.jsp?vnu_content _id=1000482311, it is not clear that the availability of particular content via broadcast will change the rate at which digital television sets are purchased. 33 As recently as 1995, the same argument was made with respect to the online world generally: in the absence of special copyright rules for the internet, so the argument went, no one would put valuable content online. See Jane C. Ginsburg, Putting Cars on the “Information Superhighway”: Authors, Exploiters, and Copyright in Cyberspace, 95 Colum. L. Rev. 1466 (1995) (arguing that no one would make real content available on the Internet in the absence of stronger intellectual property protection), cited in Mark Lemley and Lawrence Lessig, "The End of End-to-End: Preserving the Architecture of the Internet in the Broadband Era," The Berkeley Law & Economics Working Papers: Vol. 2000: No. 2, Article 8. This argument has turned out not to be valid; there is a great deal of valuable content available online. See Kevin Kelly, The Web Runs on Love, Not Greed, Wall Street Journal, Jan. 4, 2002, available at http://www.tresser.com/web_runs.htm. 34 See Letter from Edward O. Fritts, NAB President and CEO, to Michael Powell, FCC Chairman (Oct. 27, 2003) (available at http://www.nab.org/Newsroom/PressRel/Filings/default.asp) (“The broadcast flag is necessary to prevent widespread unauthorized redistribution of digital broadcast content over the Internet. Without it, high quality programming will migrate off of free television.”); see also Wired News Report, FCC Moves to Stifle TV Piracy, Wired News, at http://www.wired.com/news/technology/0,1282,61083,00.html?tw=wn_story_page 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 11 Although the bandwidth demands of downloading or uploading video content remain extraordinary (and are likely to continue to be extraordinary for several years to come),35the video content industry has successfully convinced the FCC36 that television broadcasts need to be protected against online redistribution by people who receive such broadcasts. I have argued elsewhere37 that closer analysis of the broadcast flag rulemaking reveals that control over unauthorized transmission to the public of digital broadcast material is a minor part of what the MPAA plans. The content industry's goal is nothing less than total control of information media. This plan starts with building mandated digital transmission control/encryption systems into any device that could potentially be used as a digital media player -- including PCs -- and ensuring that these devices cannot legally transmit flagged information online. The costs of protecting this flagged information will be borne by the manufacturing/information technology sector of the US economy, rather than by the information providers themselves.38 _prev2 (Nov. 4, 2003). The studios (and broadcasters) may also be worried about the viability of broadcast in an era in which some predict that television network ad sales are going to diminish sharply over the next few years. Frank Rose, The Lost Boys, Wired, Aug. 2004, at 116 (also noting that the UCLA Internet Project has found for the last five years that Net users "consistently watch less TV than other people -- in 2003, more than five hours less per week.") 35 Using broadband movie download service Movielink, it takes half an hour to download a full film over a 1.5 Mbps broadband connection. Karl Bode, "Futility on Demand? Movielink Says They‟ve Arrived," October 2003. http://www.dslreports.com/shownews/34761 36 The public record in the broadcast flag proceeding reveals that the Motion Picture Association of America, made up of Sony Pictures Entertainment Inc., Metro-Goldwyn-Mayer Studios Inc., Paramount Pictures Corporation, Twentieth Century Fox Film Corporation, Universal City Studios, Inc., Warner Bros., and an affiliate of The Walt Disney Company, has made at least 40 written and in-person applications to FCC staff and Commissioners. The initial rule set forth in the Order bears a very strong resemblance to the proposals made by the MPAA. The MPAA has enormous political clout. A 1999 survey commissioned by Fortune ranked MPAA 17th (five notches below the National Governors' Association and three notches above the National Association of Broadcasters) among the most powerful interest groups that operate lobbying activities in Washington. "Interest Groups That Lobby: How They Ranked in December, 1999," available at http://www.twyman- whitney.com/americancitizen/politics/lobbies.htm. 37 Susan P. Crawford, The Biology of the Broadcast Flag, 25 Hastings Comm/Ent L.J. 559 (2003). 38 Id. 6/28/2011 5:59 AM Other than in the flag proceeding, the FCC has not in the past ordered non-common-carrier manufacturers to change the design of their products in the absence of a statute specifically granting the Commission authority to make such demands, and has been careful not to require that particular forms of technology be installed. For example, the All Channel Receiver Act expressly devolved to the FCC the power to require that televisions sold in the U.S. "be capable of adequately receiving all frequencies allocated by the Commission to television broadcasting."39 When the FCC issued its Digital Tuner Order, it relied on ACRA as its authority.40 It is true that when ACRA was enacted in 1962, Congress was worried about the "specific problem" of the "lack of TV sets that could receive UHF channels."41 But the FCC pointed out that the 1962 Congress could not have anticipated the digital transition, and the problems faced by the FCC in 1962 (when UHF channels were not being developed) and 2002 (when consumers were not buying digital television sets) were very similar: Here, the Commission is faced with a similar problem -- that is, the reluctance of the public to buy DTV receivers until there are DTV stations offering attractive DTV programs, and the lack of incentive for broadcasters to provide good attractive DTV programming in the absence of an audience which will attract advertisers. As Congress and the Commission found in the UHF context, requiring the manufacture of DTV receivers will address the root cause of the problem, namely the lack of television receivers capable of receiving DTV signals.42 39 47 U.S.C. § 303(s). Originally, ACRA would have given the FCC broad authority to set performance standards for television receivers. See S. REP. NO. 87-1526 (1962), reprinted in 1962 U.S.C.C.A.N. 1873, 1879. But the draft bill was sharply questioned for the role it allowed the FCC in receiver design. Id. Sen. Kenneth Roberts stated that "[t]he FCC should not have the power to require that all sets be color sets, or have a certain size of picture tube or be made with a certain size speaker and so forth." Electronic Indus. Ass‟n. Consumer Elec. Group v. FCC, 636 F.2d 689, 694 (D.C. Cir. 1980) (citing All-Channel Television Receivers: Hearing on S. 2109 before the Subcomm. on Communications of the Senate Comm. On Commerce, 87th Cong. 59 (1962)). 40 Consumer Electronics Association v. FCC, 347 F.3d 291 (D.C. Cir. 2003). 41 Digital Tuner Order, 17 F.C.C.R. at 15,990. 42 Id. at 15,990 27. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 13 In late October 2003, the D.C. Circuit upheld the FCC's jurisdiction to enter the DTV Order, citing specifically FCC's reliance on ACRA. 43 As the D.C. Circuit stated, "The use of broad language in ACRA -- speaking only of 'receiving all frequencies allocated by the Commission to television broadcasting,' 47 U.S.C. § 303(s) -- to solve the relatively specific problem of UHF reception, militates strongly in favor of giving ACRA broad application [and supporting the FCC's rulemaking authority in the DTV setting]."44 This case strongly supports the notion that FCC requires a statutory mandate in order to require non-common carrier manufacturers to modify their devices. Similarly: to prevent harmful interference from radiating devices, Congress enacted a statute giving FCC the authority to make rules on the subject.45 Before the FCC mandated closed captioning, Congress passed the 1990 Television Decoder Circuitry Act,46 which gave the FCC power to require manufacturers to equip televisions "with built-in decoder circuitry designed to display closed-captioned television transmissions."47 Congress included the following statement: it was "not the intent of the bill to require, directly or indirectly, 43 Consumer Electronics Association v. FCC, 347 F.3d 291 (D.C. Cir. 2003). In re Review of the Commission's Rules and Policies Affecting the Conversion To Digital Television, MM Docket No. 00-39, Second Report and Order and Second Memorandum Opinion and Order, FCC 02-230, at paras. 1, 23-28, 35, 45-46 (rel. Aug. 9, 2002). 44 Slip. op. at 12-13. 45 See Pub. L. No. 90-379, 82 Stat. 290 (1968) (codified at 47 U.S.C. § 302). See 47 C.F.R. Part 15.5(b): Operation of an intentional, unintentional, or incidental radiator is subject to the conditions that no harmful interference is caused and that interference must be accepted that may be caused by the operation of an authorized radio station, by another intentional or unintentional radiator, by industrial, scientific and medical (ISM) equipment, or by an incidental radiator. 15.5(c) The operator of the radio frequency device shall be required to cease operating the device upon notification by a Commission representative that the device is causing harmful interference. Operation shall not resume until the condition causing the harmful interference has been corrected. Section 15.13: Manufacturers of these devices [incidental radiators] shall employ good engineering practices to minimize the risk of harmful interference. 46 See Pub. L. No. 101-431, 104 Stat. 960 (1990) (codified at 47 U.S.C. §§ 303(u), 330(b)). 47 47 U.S.C. § 303(u). 6/28/2011 5:59 AM standardization of a specific decoding chip or specific decoding circuitry."48 And before the FCC mandated that a V-Chip be installed by manufacturers, Congress passed the Parental Choice in Television Programming provisions of the 1996 Telecommunications Act.49 Again, these provisions of the act were not technology-specific, and authorized the FCC only to require manufacturers to equip televisions with "a feature designed to enable viewers to block display of all programs with a common rating."50 In doing so, Congress instructed the FCC to preserve for manufacturers the option of using "alternative technology that meets certain standards of cost, effectiveness and ease of use."51 C. Legal Congress has not passed a statute addressing the broadcast flag issue. But several bills have been discussed that would have constrained digital devices. All of these bills have foundered. First, Sen. Hollings (D-SC) introduced in 2002 his Consumer Broadband and Digital Television Promotion Act, S.2048, which would have allowed the FCC to mandate a security standard for all digital media devices that would have protected digital content. Under the bill, it would have been illegal to make or provide a "digital media device" that did not contain such standard security measures (or to remove such measures). After a political uproar from technology companies and consumer advocates, the Hollings bill was not pursued further.52 48 S. REP. NO. 101-393, at 9 (1990), reprinted in 1990 U.S.C.C.A.N. 1438, 1446. 49 See Pub. L. No. 104-104, sec. 551, 110 Stat. 56, 139-42 (1996) (codified at 47 U.S.C. §§ 303(x), 330(c)). 50 47 U.S.C. § 303(x). 51 H.R. Conf. Rep. No. 104-458, at 196 (1996), reprinted at 1996 U.S.C.C.A.N. 124, 210. 52 Senator Patrick Leahy, chairman of the Senate Judiciary committee, said through spokesman David Carle that he did not support the CBDTPA. His committee had jurisdiction over the bill. Declan McCullagh, "Hollings Howls Will Have to Wait," March 30, 2002, at http://www.wired.com/news/politics/0,1283,5142500.html. Computer manufacturer Gateway opposed CBDTPA in television, radio, and online ads, as well as with in-store promotions. The ads encouraged viewers to legally download music and to educate themselves about their current digital rights, stating, "Gateway supports your right to enjoy digital music legally.” Gateway also gave away free blank CDs and hosted free clinics on digital music downloading without infringing on copyrights. Christopher Saunders, “Gateway Ads Attack Hollings Bill”, April 10, 2002, at www.clickz.com/news/article/php/1007071. Electronic 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 15 W.J. "Billy" Tauzin (R.-LA) then held two roundtables during the summer of 2002 at which he tried to convince industry representatives to agree to adoption of content marking technology that would be implemented by consumer electronics devices,53 and followed these roundtables by floating a broad draft bill.54 The Tauzin draft would have given the FCC authority to mandate recognition of a "broadcast flag" by all digital devices that were capable of receiving a digital television signal, and to require that no equipment with analog outputs would be manufactured after July 1, 2005.55 It was never introduced. Following the Tauzin roundtables, Sen. Hollings, then the Commerce Committee's ranking Democrat, wrote to Chairman Michael Powell of the FCC, urging the FCC to adopt a "broadcast flag" and saying: Frontier Foundation, a consumer advocacy group, also opposed the bill. See id. Intel Executive Vice President Leslie Vadasz publicly opposed the CBDTPA,. As a witness in a Senate hearing on the subject, he remarked, "Any attempt to inject a regulatory process into the design of our products will irreparably damage the high tech industry. It will substantially retard innovation, investment in new technologies, and will reduce the usefulness of our products to consumers." At the same hearing, Sen. John McCain (R-Ariz.) and Sen. Sam Brownback (R-KS) also expressed opposition to the bill. Declan McCullagh and Robert Zarate, “Content Spat Split on Party Lines”, March 1, 2002, at http://www.wired.com/news/politics/0,1283,50754,00.html; see also "Letter from Vadasz to Hollings," February 28, 2002, at http://www.interesting- people.org/archives/interesting-people/200202/msg00274.html. Rhett Dawson, president of the Information Technology Industry Council, opposed the bill, along with many other programmers, saying the bill would not benefit consumers. Declan McCullagh, “Anti-Copy Bill Hits D.C.”, March 22, 2002, at http://www/wired/com/news/politics/0,1283,51245,00.html. Major opposition cam from EFF, Intel, the Association for Competitive Technology, and the Home Recording Rights Coalition. Amy Harmon, “Movie Studios Press Congress in Digital Copyright Dispute”, New York Times, Late Edition, Final, Section C, Page 3, Column 1. July, 29, 2002. Association for Competitive Technology (ACT) president Jonathan Zuck issued a statement calling the CBDTPA “simply wrongheaded.” Mark Blafkin, “Press Release, Hollings‟ Digital Rights Management Bill is „Wrongheaded‟”, March 22, 2002, at http://www.politechblot.com/docs/cbdtpa/act.cbdtpa.032202.html. 53 Prepared Statement of Billy Tauzin, Chair, House Committee on Energy and Commerce, Subcommittee on Telecommunications and the Internet, September 25, 2002 (found at http://energycommerce.house.gov/107/hearings/09252002Hearing719/The_Honora ble_Billy_Tauzin.htm). CPSR Journal, Summer 2002, http://www.cpsr.org/publications/newsletters/issues/2002/Summer/hyland.html. 54 "H.R. ___," draft dated September 18, 2002, at http://energycommerce.house.gov/107/drafts/dtv_staff_draft.pdf. 55 http://energycommerce.house.gov/107/drafts/dtvstaff.htm 6/28/2011 5:59 AM With respect to a 'broadcast flag,' . . . the FCC may act absent legislation. Such implementation is clearly authorized by statutory provisions in the Communications Act specifically delegating to the FCC wide authority to facilitate the digital television transition. For example, 47 U.S.C. § 336(b)(4) authorizes the FCC to "adopt such technical and other requirements as may be necessary or appropriate to assure the quality of the signal used to provide advanced television services," and 47 U.S.C. § 336(b)(5) grants the FCC the authority to prescribe regulations relating to advanced television services ''as may be necessary for the protection of the public interest, convenience, and necessity." It is beyond dispute that the public interest would be served by regulations protecting digital broadcast content. . . 56 Other Senators were just as exercised about the flag, but on the other side: Sen. Brownback (R-KS), also a member of the Senate Commerce Committee, floated a draft bill of his own, the Consumers, Schools, and Libraries Digital Rights Management Awareness Act of 2003, that would have precluded the FCC from "mandating that consumer electronics, computer hardware, telecommunications networks, and any other technology that facilitates the use of digital media products, such as movies, music, or software, be built to respond to particular digital rights management technologies."57 Sen. McCain also wrote a strong letter to Powell on the subject, saying, "I am writing to inquire how implementation of the broadcast flag proposal would impact consumers - both immediately and in the future. In particular, I ask you to comment on whether this impact would be mitigated or further exacerbated by future Commission actions to address the "analog hole" issues that all parties agree will persist 56 Letter Hollings to Powell, July 19, 2002 (on file with author). 57 Statement of Senator Sam Brownback, September 16, 2003, at http://www.eff.org/IP/DRM/20030916_brownback_statement.pdf. Brownback also wrote at least twice to Chairman Powell and issued a press release expressing his concerns about the impending flag decision. "Their committee colleague Sam Brownback, however, is urging the FCC to slow down. The Kansas Republican called on the FCC to drop plans to approve the flag mandate in a vote behind closed doors and instead hold an en banc hearing on the issue." "The commission should go to great lengths to explain why it is necessary to implement the broadcast flag at this time, and in a non-public manner." Bill McConnell, "Senate Commerce of Unlike Minds on Broadcast Flag," Broadcasting & Cable, October 29, 2003, at http://www.broadcastingcable.com/article/CA332207?partner=google. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 17 even if a broadcast flag is implemented.58 Given these apparent doubts about the effectiveness of a broadcast flag, has the Commission considered whether the anticipated benefit to be derived from such a mandate justifies its potential cost to consumers?"59 Notwithstanding these letters received in September and October of 2003 by the FCC, the Commission issued its Order in early November 2003. In examining its jurisdiction to require equipment manufacturers to "effectuate a redistribution control system" for digital TV broadcasts,60 it determined that Title I of the Communications Act adequately if indirectly conveyed such power, for three reasons. First, it found that television reception equipment is covered by the Commission's general jurisdictional grant, because the Commission was created for the purpose of "regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, Nation- wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges,"61 and is asked to "execute and enforce the provisions of [the Telecommunications] Act."62 Because the definitions of "wire communication" and "radio communication" found in the Act's broadcasting title are broad and cover "apparatus . . . incidental to such transmission,"63 the FCC reasoned that television receivers must be covered. Second, it asserted that the Commission is given regulatory authority over all interstate communication by wire or radio.64 This is the Commission's key assertion as to its ancillary jurisdiction, and as I discuss more fully below in Part __, it is not completely convincing. Although it is true that the Act applies to "all interstate and foreign communication by wire or radio and all interstate and foreign transmission of energy by radio, which originates and/or is received within the United States,"65 this does 58 The "analog hole" issue concerns the ditigization of unprotected (unencrypted) analog transmissions. High-quality analog transmissions can be converted to high- quality digital copies. When digital content marked with the broadcast flag is converted to an analog form and then re-digitized, the flag protection is lost (washed out, in effect) and the content can be manipulated and transmitted online. Because most digital devices have analog outputs, the "analog hole" problem makes the flag solution ineffective. 59 Letter McCain to Powell, Oct. 16, 2003. 60 Order at 14. 61 47 U.S.C. Sec. 151. 62 Id. 63 47 U.S.C. Sec. 153(33). 64 Order at 14. 65 47 U.S.C. Sec. 152(a). 6/28/2011 5:59 AM not necessarily mean that the Commission has legislative rulemaking authority granted by Title I over all wire and radio communications within the US and all the devices that touch these communications. Instead, this "application" paragraph is more likely intended to limit the subject matter coverage of the Act as a whole by, for example, making clear that the Act does not apply to "persons engaged in wire or radio communication or transmission in the Canal Zone."66 The only rulemaking authority contained in Title I is an internal housekeeping section buried in Section 4 of that Title. Third, the Commission reasoned that imposing the flag mandate was "reasonably ancillary to the effective performance of the Commission's various responsibilities";67 because the FCC had been charged by Congress "with shepherding the country's broadcasting system into the digital age."68 Without the protections afforded by the flag scheme, the FCC argued, "a critical element necessary to the success of the DTV transition – the availability of quality digital broadcast programming – will not develop."69 In January 2004, a coalition of library associations and consumer groups sued the FCC in the D.C. Circuit, claiming that the Commission lacked jurisdiction to adopt the flag rule.70 As of the date of the drafting of this Article, a decision had not yet been made by the court. II. IP-ENABLED SERVICES BACKGROUND A. Technical On March 10, 2004, the FCC released the IP NPRM. [Then, in August, the FCC adopted the CALEA NPRM.] The FCC made clear that "the scope of this proceeding – and the term “IP-enabled services,” as it is used here – includes services and applications relying on the Internet Protocol family."71 66 Id. 67 Order at 15. 68 Id. 69 Order at 16. 70 American Library Association, et al., v. Federal Communications Association, et al., No. 04-1037 (D.C. Circuit, filed January 10, 2004). 71 In the Matter of IP-Enabled Services, WC Docket No. 04-36 (Released, March 10, 2004), n1. Thus, the IP NPRM's very first footnote suggests that the Commission views its regulatory authority as extending to end-user software, 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 19 To understand what an "IP-enabled service" is, we need to look back at telephone networks. Telephone networks use circuit switching. When a call is made from one person to another, a dedicated connection is opened and sustained for the duration of the call. Because that connection goes in both directions, it is called a circuit. Your call is routed via your local carrier through a switch to reach the person you are calling. The network that makes all of these conversations possible is called the Public Switched Telephone Network, or PSTN. Data networks use packet switching, not circuit switching. There is no constant, open connection in a packet switched network. Instead, the sending computer divides data into packets, puts addressing information on each one, and opens a connection just long enough to send each packet. The packets follow whatever route seems most efficient at the time (which may be different for each packet) and are reassembled by the receiving computer. This is a much more efficient way of sending and receiving information, because it minimizes and balances the load borne by the network and frees up the computers that are communicating with one another. Data networks and packet switching rely on the Internet Protocol, or IP. You need to know two things in communicating over a network: where your communication is going and what you are sending. The IP family of protocols (the FCC's term, which I take to mean TCP/IP) standardizes the method by which packets are created, addressed, routed, received, and reassembled. Every application used online depends on this family of protocols. Every web page, peer to peer system, online banking transaction, email, and instant message depends on these protocols. The domain name system itself, which depends on the mapping of IP addresses (unique numbers in the form xxx.xxx.xxx.xxx assigned in blocks to ISPs and others) to physical machines, depends on the IP family of protocols. IP itself, taken separately from the Transmission Control Protocol, or TCP (a protocol that provides checkups on whether all data sent has in fact been received) provides for transmitting blocks of data from sources to destinations across interconnected networks, where those sources and destinations are identified by fixed-length addresses.72 IP "provides the basic delivery mechanism for packets of data sent between all systems on an internet, regardless of whether the systems are in the same room or on opposite sides of the world. All other protocols in the TCP/IP suite depend network hardware, corporate and community websites and more. See Comments of MSN in WC Docket No. 04-36, at 9. 72 The fundamentals of IP are described in RFC 791. ftp://ftp.isi.edu/in- notes/rfc791.txt. 6/28/2011 5:59 AM on IP to carry out the fundamental function of moving packets across the internet."73 Thus, the term "IP-enabled service" means everything used in connection with the internet.74 The Commission, while acknowledging that the internet had "become one of the greatest drivers of consumer choice and benefit, technical innovation, and economic development in the United States in the last ten years,"75 stated that "provisions designed to ensure disability access, consumer protection, emergency 911 service, law enforcement access for authorized wiretapping purposes, consumer privacy, and others [public policy concerns] – should continue to have relevance as communications migrate to IP-enabled services."76 The IP NPRM suggests that traditional "common carrier" regulation, in which service providers file tariffs, have interconnection obligations, and pay access fees, may not be appropriate for IP-enabled services.77 But the IP NPRM suggests that the "social policies" rules enumerated above may be appropriate for some or all IP- enabled services. B. Political There appear to be at least three forces driving the IP-enabled services rulemaking: (a) state and federal efforts to regulate voice over IP (VoIP) services; (b) law enforcement interest in having assistance in wiretapping use of VoIP and other IP-enabled applications; and (c) FCC interest in maintaining its relevance by asserting "non-regulatory" regulatory control over online services and applications. i. Making Rules About VoIP VoIP is an IP-enabled service -- transmitting telephone calls over a data network, using packet-switching to save costs. Packet-switched telephone calls use a fraction of the transmission time and and informational load of circuit-switched calls, because they do not convey information unless it is needed. The "dead air" of a circuit switched call, when someone is listening or both conversationalists are silent, can be avoided. VoIP provides the affordances of circuit-switched calls -- the conversation -- and can also make possible a platform where converged 73 TCP/IP FAQ, http://www.itprc.com/tcpipfaq/faq-1.htm#what-ip. 74 RFC 791. 75 Para. 1. 76 Para. 5 77 cite. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 21 voice/data services and applications can be sold. VoIP is particularly attractive to businesses, who can replace aging phone systems with software applications they do not have to maintain or host. Calls made with VoIP that connect to the PSTN are 20 percent to 30 percent less expensive than calls made using the traditional telephone network, because the internet is not taxed the way the PSTN is. And calls made with VoIP that do not connect to the PSTN are often completely free or very low cost. This causes heartaches for companies that base their business model on the PSTN, because they are stuck with providing universal telephone service, 911 emergency services, guaranteeing wiretapping access for police, and providing access for the hearing- impaired -- and are subject to extensive taxes and fees imposed by the FCC and the states. The rise of VoIP also causes heartaches for state and federal government. As more people begin using unregulated VoIP applications instead of the taxed traditional telephone system, federal and state governments will start to lose billions of dollars. By the third quarter of 2003, at least fifteen states had begun either to regulate or were considering the regulation of IP voice offerings.78 In particular, in September 2003, the California State Public Utilities Commission told six VoIP companies that connect to the PSTN to get a license in order to provide phone services to people in California.79 78 See Comments of SBC Communications, Inc., In the Manner of Vonage Holding Corp.'s Petition for Declaratory Ruling, WC Docket No. 03-211, at 5-6 (Oct. 27, 2003). 79 In September, 2003, California declared that Internet telephone service providers must apply for the same license used by landline phone companies by Oct. 22, 2003 to continue to operate in California. Director of the California Public Utilities Commission John Leutza noted that the distinction between land and internet phone providers was minimal. Ben Charny, “California to Regulate VoIP Providers”, September 30, 2003, at http://news.com.com/California+to+regulate+VoIP+providers/2100-7352_3- 5084711.html. In early January, 2004, California pulled back from its immediate licensing scheme for a “more deliberative process” in response to the FCC‟s suggestion that a federal policy was in the works for regulating VoIP. The new process would take up to 18 months to form regulations. PUC Commissioner Susan P. Kennedy stated that California was “acting first and asking questions later” when it required VoIP companies to get licensing in September of 2003. Ben Charny, “California Eases Up on Net Phone Rules”, January 5, 2004, at http://marketwatch-cnet.com.com/California+ eases+up+on+Net+phone+rules/2100-7352_3-5084711.html. In a unanimous vote, the California PUC assumed jurisdiction over VoIP and began drafting regulations. This occurred one day before the FCC was expected to issue rules that would pre-empt state authority, suggesting that California believes states should have a regulatory role in this issue. Ben Charny, “California Regulators Advance 6/28/2011 5:59 AM Minnesota and New York went the other direction, ruling that VoIP providers -- even those connecting to the PSTN -- were not subject to state taxing and tariffing.80 Both the California and New York PUCs announced VoIP Plans”, February 11, 2004, at http://att.com.com/California+regulators+advance+VoIP+plans/2100-7352_3- 5157628.html. 80 Minnesota tried to force licensing by VoIP providers. The Minnesota PUC ruled that Vonage‟s VoIP service was an intrastate telephone service, subject to state law. Vonage succeeded on appeal where a federal judge held that VoIP is an information service not subject to state jurisdiction. Linda Haugsted, “States Wrestle With VoIP Approaches; As Cable Ops and Others Jump into New Phone Frontier, Regulators Eye Turf Defenses”, January 5, 2004, at http://www.vonage.com/corporate/press_news.php?PR=2004_01_05_1; see also Andrew O. Isar, “VoIP Regulation, A „New Frontier‟”, at http://www.igigroup.com/holliday/VoIP.regulation.pdf; Marguerite Reardon, “VoIP: To Tax or Not to Tax”, April 28, 2004, at http://news.com.com/2100-7352- 5201671.html. See e.g., In the Matter of the Complaint of the Minnesota Department of Commerce Against Vonage Holding Corp Regarding Lack of Authority to Operate in Minnesota, Minnesota Public Utilities Commission, Docket No. P-6214/C-03-108 (Sept. 11, 2003). See also, Vonage Holdings Corporation v. The Minnesota Public Utilities Commission, and Leroy Koppendrayer, Gregory Scott, Phyllis Reha, and R. Marshall Johnson, in their official capacities as the commissioners of the Minnesota Public Utilities Commission and not as individuals, Civil No. 03-5287, Memorandum and Order (October 16, 2003), at http://www.nysd.uscourts.gov/courtweb/pdf/D08MNXC/03- 08475.PDF. New York proceedings: See e.g., Complaint of Frontier Telephone of Rochester , Inc. Against Vonage Holdings Corp. Concerning Provision of Local Exchange and InterExchange Telephone Service in New York State in Violation of the Public Service Law, at http://www.frontieronline.com/pdf/vonagecomplaint.pdf See also, Complaint of Frontier Telephone of Rochester, Inc. Against Vonage Holdings Corporation Concerning Provision of Local Exchange and InterExchange Telephone Service in New York State in Violation of the Public Service Law. Case No. 03-C-1285, Order establishing balanced regulatory framework for Vonage Holdings Corporation (May 21, 2004), at http://www3.dps.state.ny.us/pscweb/WebFileRoom.nsf/0/C03561B8303FD808852 56E9B004F8806/$File/03c1285.pdf?OpenElement But see Ben Charny, Vonage Beats Back New York Ruling, CNet, June 30, 2004, at http://zdnet.com.com/2100-11032-5253841.html.See Order Establishing Balanced Regulatory Framework for Vonage Holdings Corp., Complaint of Frontier Telephone of Rochester, Inc. Against Vonage Holdings Corporation Concerning Provision of Local Exchange and InterExchange Telephone Servie in New York State in Violation of the Public Service Law, Case No. 03-C-1285, at 9, 13 (N.Y. Pub. Serv. Comm‟n May 21, 2004) (asserting state jurisdiction to regulate Vonage‟s VoIP service and finding that, even if the Commission were 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 23 that they would pull back, giving the FCC time to come up with rules for VoIP.81 The March 2004 NPRM was at least in part a response to these state efforts. Vonage, a VoIP company that connects to the PSTN, has called for FCC preemption of any state taxes or regulation of VoIP. VoIP, particularly those VoIP applications that do not connect to the traditional telephone network (such as Yahoo! Messenger and Pulver.com) is technically indistinguishable from any other online application: a source takes data and sends it to a destination. Because it is hard to draw a line betwdeen VoIP and anything else, the FCC has said that the IP-enabled services rulemaking is about all applications that use IP -- even though the rise of VoIP has prompted the rulemaking. . ii. Law enforcement CALEA desires Under the federal wiretap statute, Title III, all electronic communications -- no matter whether they are in the form of faxes, emails, or VoIP calls -- can be intercepted legally if a wiretap order has been obtained.82 Any provider of any electronic communications service is required to furnish information and technical assistance for such an interception.83 With the rise of digital telephony in the early 1990s, law enforcement was worried that new digital systems would be more difficult to tap than analog systems, and wanted to ensure that it would be able speedily to implement wiretap orders. Law enforcement may also have wanted to shift the cost of adjusting to different telecommunication carriers' systems to the carriers themselves. After substantial narrowing negotiations, the Communications Assistance for Law Enforcement Act, or CALEA, was ultimately to classify that service as an “informational service,” the state could still regulate its intrastate aspects). 81 -In early January, 2004, California pulled back from its immediate licensing scheme for a “more deliberative process” in response to the FCC‟s suggestion that a federal policy was in the works for regulating VoIP. The new process would take up to 18 months to form regulations. PUC Commissioner Susan P. Kennedy stated that California was “acting first and asking questions later” when it required VoIP companies to get licensing in September of 2003. Ben Charny, “California Eases Up on Net Phone Rules”, January 5, 2004, at http://marketwatch- cnet.com.com/California+eases+up+on+Net+phone+rules/2100-7352_3- 5084711.html. 82 Wire and Electronic Communications Interception and Interception of Oral Communications, 18 U.S.C. §§ 2510-2522 (1994). 83 Id. 6/28/2011 5:59 AM enacted in 1994.84 The Act requires that telecommunications providers -- common carriers of telephone communications85 -- provide certain specific capacities and capabilities to make wiretapping easier for law enforcement.86 Even though the internet had not come into common use in 1994, Congress was then well aware of the differences between circuit-switched and packet-switched networks that I have described above. The internet, unlike the telephone system, is a "stupid network."87 Where a central telephone provider must provide enhanced functionalities at a physical termination point, IP network design is flat and highly decentralized, allowing substantial innovation to occur at the "edge" of the network.88 Congress specifically elected to leave internet services out of CALEA's coverage.89 84 Then-FBI Director Louis Freeh said during a joint congressional hearing on CALEA in 1994 that a broader bill covering all communications service providers had been "rejected out of hand." Joint Hearings before the Subcomm. on Tech. and the Law of the Senate Comm. on the Judiciary and the Subcomm. on Civil and Const‟l Rights of the House Comm. on the Judiciary on H.R. 4922 and S. 2375, at 49 (Mar. 18 and Aug. 11, 1994) . 85 47 U.S.C. § 1001(8)(A). This is a a "who" question, not a "what" question. FCC must undertake a public interest analysis before deciding that a particular entity is a telecommunications carrier for purposes of CALEA. 86 Id. 87 David Isenberg, Rise of the Stupid Network, Computer Telephony (1997), available at http://www.hyperorg.com/mis/stupidnet.html. 88 As the Commission said in the IP NPRM, "[w]hereas the PSTN's design is logically and physically hierarchical, utilizing highly centralized signaling intelligence to connect parties to a communication, IP network design is „flat,‟ distributing network intelligence and permitting highly dynamic and flexible routing . . . . And whereas enhanced functionalities delivered via the PSTN typically must be created internally by the network operator and are often tied to a physical termination point, IP-enabled services can be created by users or third parties, providing innumerable opportunities for innovative offerings competing with one another over multiple platforms and accessible wherever the user might have access to an IP network." IP NPRM, para. 4. 89 See 47 U.S.C. § 1002(b)(2); see also United States Telecom Ass‟n v. FCC, 227 F.3d 450, 455 (D.C. Cir. 2000) ("CALEA does not cover 'information services' such as email and internet access"; Telecommunications Carrier Assistance to the Government, H.R. Rep. 103-827(I), at 23 (Oct. 4, 1994) ("House Report") (CALEA obligations "do not apply to information services, such as electronic mail services, or on-line services, such as Compuserve, Prodigy, America On-line or Mead Data, or Internet service providers"). The Commission has found that information services “such as electronic mail providers and on-line service providers” are exempt from CALEA. In the Matter of Communications Assistance 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 25 With the increasing popularity of VoIP services, law enforcement became concerned that it would become increasingly difficult to wiretap online communications that, from their perspective, were equivalent to traditional telephone calls. In March 2004, the DOJ, the DEA, and the FBI filed a joint petition asking the FCC to begin a rulemaking proceeding focused on CALEA implementation for broadband access services and broadband telephony.90 Shortly thereafter, bills were introduced in both the Senate (S.2218, Sununu) and House (H.___, Boucher) that would have affected the FCC's jurisdiction over VoIP [figure out how], but did not pass. The IP-enabled services rulemaking is not focused on CALEA. But it is clearly designed to fit with whatever rules the FCC ends up making about CALEA, and is at least in part driven by the perceived need to deal with all "social policy" concerns -- including law enforcement access -- at once. FCC has made clear that it intends to coordinate the two proceedings. Law enforcement pressure to "do something" in response to terrorist concerns has been very strong, and FCC clearly feels the need to ensure that the police are not frustrated in their desires to implement wiretap orders. In August 2004, the FCC granted the Joint Petition in part, saying [quote], and initiated a rulemaking with respect to CALEA access to VoIP. The two proceedings are now explicitly linked and were scheduled in the summer of 2004 to move forward very quickly. iii. FCC relevance A third reason for the breadth of the IP NPRM was FCC's desire to maintain its relevance in an era of decreasing reliance on telephones. The old world of circuit-switched networks and monopoly providers, on which FCC's regulatory scheme depended, is rapidly being replaced by a new age of packet-switched networks for which scarcity simply is not an issue.91 To f or Law Enforcement Act, Second Report and Order, 15 FCC Rcd 7105, at ¶ 26 (1999). 90 Petition at iii, 15. 91 Jonathan Weinberg, The Internet and "Telecommunications Services," Universal Service Mechanisms, Access Charges, and Other Flotsam of the Regulatory System, 16 YALE. J. ON REG. 211, 225–38 (1999) ("Packet-switched networks are taking over, and the communications world is changing."); Mark A. Lemley & Lawrence Lessig, The End of End-to-End: Preserving the Architecture of the Internet in the Broadband Era, 48 UCLA L. REV. 925, XX (2001) ("The Internet is the fastest growing network in history. In the 30 years of its life, its population has grown a million times over. It is currently the single 6/28/2011 5:59 AM date, and with very modest exceptions that can be directly tied to FCC's telecommunications authority, FCC has not had much to say about "regulating the internet."92 Over the last 30 years, the FCC has, however, had something to say about regulating computers. Beginning in 1971, the FCC had three proceedings (called Computer I, Computer II, and Computer III) about the relationships between computer data processing (computers used to direct network operations) and telecomunications (end-users using computers to communicate) resulted in FCC pronouncements that where data was transformed by computers before being presented to human end-users, these services (called "enhanced services") would be "unregulated" by the FCC.93 Basic services, by contrast, which provided only transmission of communications, would be regulated under FCC's "common carrier" Title II regime.94 The Commission predicted, correctly, that the development and availability of "enhanced services" would best be promoted if regulatory rules and procedures were not "interjected between technology largest contributor to the growth of the United States economy, and has become the single most important influence linking individuals, and commerce, internationally"); see also Reno v. ACLU, 521 U.S. 844, 868–70 (1997). 92 FCC did impose conditions in connection with approving the AOL/Time Warner mergter, requiring that AOL's instant messaging client interoperate with competitors and that Time Warner should make capacity on its cable systems available for internet access by competitors. But these conditions were eventually weakened [need update] and were based on FCC's approval of license transfers between the merging companies. See Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations by Time Warner Inc. and America Online, Inc., Transferors, to AOL Time Warner Inc., Transferee, FCC 01- 12, CS Docket No. 00-30, released January 22, 2001. Randolph May, A Reform Agenda for the New FCC, 3 info, Oct 2001 ("Until very recently the FCC mostly has resisted pleas by those who would regulate it in one way or another „to level the playing-field‟ or ensure „open access‟. And absent such government control, by all relevant measures, whether by number of sites, subscribers, online purchases, and so on, the Internet has flourished beyond the imagination of all but the most prescient.") 93 Computer II, 1980. 94 Common carriers are subject to rate regulation, tariffs, colocation rules, etc. expand with cites. From Verizon comments at The term “economic regulation” is intended to encompass the broad range of regulatory requirements that were originally intended to apply generally to incumbent franchised local exchange carriers using their networks to provide services to a public that is without significant power to negotiate the rates, terms, and conditions of those services. See NPRM ¶ 74. These are regulations that are necessary to protect consumers from the exercise of market power, including rate regulation, tariff filing requirements, and exit and entry regulation. Qwest comments at 40. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 27 and its marketplace applications."95 The passage of the Telecommunications Act of 1996 represented a codification of this "unregulation" approach. The Act defined "Information Services" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing."96 The Commission stated that "information services consist of all services that the Commission previously considered to be enhanced services."97 This signalled that all "information services" -- an apparently broad category of computer assisted communications -- would be "unregulated" by the FCC (as "enhanced services" had been).98 In particular, the Act mandated as "policy of the United States" that development and use of the Internet be "unfettered by federal or state regulation."99 The courts have consistently hewed to this policy.100 But as the internet world continued to explode, some of the regional Bell operating companies -- heavily regulated by the FCC -- supported FCC's call for "social polices" (not economic regulation) to be applied to IP-enabled services.101 Chairman Powell, in a separate statement 95 Final Decision, Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, 77 FCC 2d 384, ¶ 116 (1980) ("Computer II Final Decision"). 96 Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (codified in 47 U.S.C. §§ 151-170). 97 In re The Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report and Order And Further Notice Of Inquiry, ¶ 74 (September 29, 1999). 98 IP-enabled services clearly convert information from one form to another, process, retrieve and store information, and perform many other functions that constitute information services, including facilitating subscriber interaction with stored information (such as customer profiles). They thus are classified as "information services" to which Title II and certain other regulations do not apply. By contrast, "telecommunications services," which are subject to Title II regulations, are defined as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." See 47 USC § 153(43) & (46) (2001) (definitions of "telecommunications" and "telecommunications service"). 99 47 U.S.C. § 230(b)(2) (2001). 100 Zeran v. America Online, Inc., 958 F.Supp. 1124 (E.D. Va. 1997), aff’d, 129 F.3d 327 (4th Cir.1997), cert. denied, 524 U.S. 937 (1998); see also Doe v. America Online, Inc., 738 So.2d 1010 (Fla. 2001), aff’d 718 So.2d 385 (Fla. 4th DCA. 1998), approved 783 So.2d 1010 (Fla. 2001), cert. denied 534 U.S. 891 (2001). 101 Verizon does, Qwest doesn't, SBC does, BellSouth? comments. 6/28/2011 5:59 AM accompanying the IP-enabled services NPRM, said "rules designed to ensure law enforcement access, universal service, disability access and emergency 911 service can and should be preserved in the new architecture."102 The FCC had found a new role for itself: ensuring "social policy" structures in the online world. This would enable the FCC to remain relevant and necessary in the age of the internet, while not extending all of the old economic tariffing rules to online services. The FCC needed to act quickly, both to preempt further state action (as described above) and -- it believed -- to ensure Chevron deference to whatever regulatory categories it chose to apply to IP-enabled services. During 2003, a Commission ruling on the classification of cable modem service (calling it an "information service") was only tentative with respect to whether "forbearance" was appropriate for all Title II common carrier regulation of this service.103 After the Commission released this tentative order, the 9th Circuit reversed the FCC's ruling on the classification issue, finding that cable modem service was in part a "telecommunications service."104 The Commission felt it had been inadequately deferred to and blamed the "tentativeness" of its ruling. It was determined to act decisively this time and ensure its jurisdictional and decisional turf.105 III. ANCILLARY JURISDICTION A. Background 102 Separate Statement of Michael K. Powell, IP-Enabled Services Notice of Proposed Rulemaking, at 1; see also NPRM ¶ 42 ("Congress stated that the Internet should remain free from regulation. But Congress also has stated public policy goals that would presumably continue to apply as communications networks evolve. For example, it has stated that universal service should be maintained, that telecommunications equipment and services should remain usable by people with disabilities, that prompt emergency service should be available to the public through the 911 system, and that communications should be accessible to law enforcement officers acting on the basis of a lawfully obtained warrant.") (footnote omitted). All of these "public policy goals" have been expressed by Congress with respect to telecommunications services -- common carriers. 103 Cable Modem Order, at 4825-26 para 45, 4847 para 94. 104 Brand X Internet Servs. v. FCC, 345 F.3d 1120, 1132 n.4 (9th Cir. 2003). 105 As discussed below, I believe Chevron deference is likely inappropriate where a substantial increase in an agency's jurisdictional territory is involved. Cable service is already explicitly a subject for FCC regulatory control under Title VI of the Communications Act; IP-enabled services provided by non-common carriers are another thing altogether. It is not clear to me that FCC decisiveness should necessarily be deferred to by any court reviewing whatever IP-enabled services order emerges from this rulemaking process. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 29 The general purpose of the Communications Act of 1934 (amended in 1996) is to "make available ... to all the people of the United States, a rapid, efficient, nationwide, and worldwide wire and communication service with adequate facilities at reasonable charges." The Act grants regulatory authority to the FCC over three specific modes of communication services: (a) interstate common carriers under Title II, (b) spectrum licensees under Title III, and (c) cable operators under Title VI. Because manufacturers of consumer electronics equipment and providers of IP-enabled services are neither Title II common carriers, Title III spectrum licensees, or Title VI cable operators, the FCC looks back to Title I of the Act -- where it believes its general purpose authority is found -- to support its jurisdiction over these entities. Title I is admittedly quite general. It creates the FCC "[f]or the purpose of regulating interstate and foreign commerce in communication by wire and radio," in order to "make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nationwide, and world-wide wire and radio communication service with adequate facilities at reasonable charges."106 Section 2(a) of Title I states that "[t]he provisions of this act shall apply to all interstate and foreign communication by wire or radio and all interstate and foreign transmission of energy by radio, which originates and/or is received within the United States, and to all persons engaged within the United States in such communication or such transmission of energy by radio."107 This section seems to be more about scope of coverage -- it intentionally excludes people in the Canal Zone, for example -- than about granting rulemaking authority. Section 4 of Title I is a lengthy housekeeping section that defines the membership of the FCC, sets forth rules about reimbursement of travel expenses, makes rules about the number of assistants each Commissioner may hire, and sets rates for overtime pay of field engineers. Deeply buried after all of this text, the Act states in 4(i) that "[t]he Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions." This section seems to be wholly focused on 106 Communications Act of 1934, ch. 652, § 1, 48 Stat. 1064, 1064 (1934) (codified as amended at 47 U.S.C. § 151 (2000)). 107 § 2(a), 48 Stat. at 1064 (codified as amended at 47 U.S.C. § 152(a) (2000)). 6/28/2011 5:59 AM internal housekeeping, allowing the Commission to make rules that permit it to operate smoothly.108 In the context of both the flag rule and the IP-enabled services proceeding, the FCC has said that it has "ancillary" jurisdiction to adopt the relevant rule. Its position is that ancillary jurisdiction may be employed, in the Commission‟s discretion, where the Commission has subject matter jurisdiction over the communications at issue and the assertion of jurisdiction is reasonably required to perform an express statutory obligation.109 It is true that federal court decisions of more than thirty years ago interpreted the Act to grant the Commission a secondary type of jurisdiction, not based on any of the explicit rulemaking authorities granted in Titles II, III, or VI. But this secondary, "ancillary" jurisdiction has been sharply limited by later decisions to actions that are necessary to further the Commission's existing statutory jurisdiction. The 1968 case that made ancillary jurisdiction famous is U.S. v. Southwestern Cable.110 The case began when Midwest Television alleged that Southwestern Cable Company was cablecasting Los Angeles stations into the San Diego area, which was hurting the local San Diego broadcast station. The FCC had initially found that cable systems were neither common carriers nor broadcasters, and so FCC had no jurisdiction over them. The Commission sought Congressional approval of its jurisdiction 108 Arguably, Section 4(i) allows the Commission only to implement regulations that are necessary to carry out its explicit responsibilities under the Communications Act. See North America Telecomm. Ass‟n, 772 F.2d at 1292 (Section 154(i) authorizes the FCC to adopt rules to "the extent necessary to regulate effectively those matters already within the boundaries" of the Act); AT&T v. FCC, 487 F.2d 865, 872 (2d Cir. 1973) (stating that "Congress, rather than purporting 'to transfer its legislative power to the unbounded discretion of the regulatory body,' intended a specific statutory basis for the Commission's authority"). Indeed, reading 4(i) to do more than permit internal housekeeping would render the rulemaking provisions found in Titles II, III, and VI superfluous. Professor Speta agrees with this interpretation. Cite Speta, citing Thomas W. Merrill & Kathryn Tongue Watts, Agency Rules with the Force of Law: The Original Convention, 116 HARV. L. REV. 467, 517-519 (2002) (rulemaking grants not coupled with any provision for sanctions should be understood to authorize only interpretive and procedural rules.) 109 NPRM at para. 46, Order at 3. The flag order uses slightly different language: "[a]ncillary jurisdiction may be employed, in the Commission's discretion, where the Commission's general jurisdictional grant in Title I of the Communications Act covers the subject of the regulation and the assertion of jurisdiction is 'reasonably ancillary to the effective performance of the [its] various responsibilities.'" 110 United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968). 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 31 over cable, to no avail. The Commission then went ahead with making rules for the cable industry, and ordered Southwestern not to expand into areas where it had not been cablecasting before February 1966. The purpose of these rules was to prevent division of audiences and revenues between cable television and fledgling UHF and educational television stations. Competition by cable operators, the Commission feared, would make these new ventures unprofitable, thereby frustrating the Commission's long-standing and congressionally approved policy of attempting to provide locally controlled broadcast television service.111 When Southwestern appealed to the 9th Circuit, that court held that the FCC had not had jurisdiction to issue such an order. The Supreme Court granted certiorari, and was asked to pass on the Commission's authority to promulgate rules prohibiting importation of "distant signals" into the San Diego television market.112 The Southwestern Cable Court found that the FCC's assertion of jurisdiction was appropriate, holding that cable television was an instrument of "interstate and foreign communication by wire or radio" within the meaning of Section 2(a) of the Communications Act of 1934.113 For this reason the Commission was held to have "regulatory authority" over cable television.114 However, the Court chose not "to determine in detail the limits of the Commission's authority to regulate (cable television)" under Section 2(a).115 Instead, stressing that " 'the achievement of an agency's ultimate purposes' " was at stake,116 the Court noted that the rules were "reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting,"117 and that to carry out such responsibilities the Commission could "issue 'such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law' as 'public convenience, interest, or necessity requires.'"118 Thus, even though no express statute had been passed supporting FCC's power over cable television, the Court reasoned that the general "wire and radio" statute 111 The Court referred to congressional support for the Commission's policy of encouraging UHF development, and cited legislation requiring television receivers shipped in interstate commerce to have UHF capability, Pub.L.No. 87-529, 76 Stat. 150 (1962), as support for the Commission's restrictions on cable. See 392 U.S. at 175 & nn.41 & 42, 88 S.Ct. 1994 112 392 U.S. at 159-160, 88 S.Ct. 1994. 113 47 U.S.C. s 152(a) (1970). 392 U.S. at 167-169, 88 S.Ct. 1994. 114 Id. at 173, 88 S.Ct. 1994. 115 Id. at 178, 88 S.Ct. at 2005. 116 id. at 177, 88 S.Ct. at 2005, quoting Permian Basin Area Rate Cases, 390 U.S. 747, 780, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968), 117 id. at 178, 88 S.Ct. at 2005, 118 Id., quoting 47 U.S.C. s 303(r) (1970), 6/28/2011 5:59 AM provided statutory authority to which the cable authority was "reasonably ancillary."119 Following Southwestern Cable, the FCC promulgated a rule that cable systems serving more than 3,500 subscribers to had to provide some of their own programming. In Midwest Video I, a sharply divided Supreme Court upheld this rule under FCC's ancillary authority, reasoning (again) that Section 2(a) conferred regulatory power on the Commission.120 Because Section 2(a) did not itself "prescribe any objectives for which the Commission's regulatory power over (cable television) might properly be exercised," a test was needed for finding whether such proper objectives existed.121 The opinion found such a "test" in examining whether "long- established regulatory goals" had been met, and concluded that such an "origination rule" applied to cable systems would "'further the achievement of long-established regulatory goals in the field of television broadcasting by increasing the number of outlets for community self-expression and augmenting the public's choice of programs and types of services . . ..'" 122 The Midwest Video I Court concluded that "the regulation preserves and enhances the integrity of broadcast signals and therefore is 'reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting.'"123 Under this standard the Commission was held to be authorized to require cable program origination since such a requirement furthered Commission policies with respect to both enhancement of local service and diversification of control of available television and cable programming. 124 Midwest I thus took a giant step beyond Southwestern in relaxing the nature of the "ancillariness" necessary to support an assertion of Commission power. Midwest I arguably turns on a determination that "ancillary to broadcasting" means not only "for the protection of broadcasting" (as in Southwestern) but also embodies any regulation of cable which in its own right serves the purposes pursued by broadcast regulation. 119 Concurrence in NARUC: The Supreme Court's decision to define F.C.C. jurisdiction over cable operators in terms of its jurisdiction over television broadcasting emanated from a finding that the two operations would otherwise conflict rather than from a determination that cable television fit neatly within the Communications Act provisions governing broadcasters. 120 Midwest Video I. 121 406 U.S. at 661, 92 S.Ct. at 1867. 122 Midwest Video I, at 667-668, quoting Southwestern Cable. 123 Id at 670. Opinion was sharply divided: Four justices joined a plurality opinion; four dissented. The Chief Justice concurred in the result. 124 See 406 U.S. at 668-670, 92 S.Ct. 1860 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 33 It is worth recalling that the Midwest Video I Court sustained the Commission's jurisdiction to issue these regulations by a 5 to 4 vote and without an opinion for the Court. Chief Justice Burger cast the deciding vote, and wrote in a separate opinion that: Candor requires acknowledgment, for me at least, that the Commission's position strains the outer limits of even the open-ended and pervasive jurisdiction that has evolved by decisions of the Commission and the courts.125 125 406 U.S. at 676, 92 S.Ct. at 1874. For Chief Justice Burger, the decisive factor was that cable systems are "dependent totally on broadcast signals. . . ." Id. at 675, 92 S.Ct. 1860. By "interrupt(ing) the signal and put(ting) it to their own use for profit, they take on burdens, one of which is regulation by the Commission." Id. at 676, 92 S.Ct. at 1874, 32 L.Ed.2d at 407. In the broadcast flag setting, there can be no argument that consumer electronics devices "interrupt the signal." They receive and process it. In the rulemaking proceeding leading up to the Midwest Video I decision, the Commission was confronted with an argument made by broadcasters that cable systems should be prohibited from originating programming. The broadcasters' point was that such cable programming would siphon audiences and advertising revenue away from broadcast programming. The Commission sternly rejected this argument, stating: [A] loss of audience or advertising revenue to a television station is not in itself a matter of moment to the public interest unless the result is a net loss of television service. . . . The Commission has repeatedly recognized, of course, that a CATV- caused loss or deterioration of free broadcast service would be detrimental to the public interest since it does not presently appear that CATV could replace such service for viewers not economically reached by cable or those unable to afford CATV charges. However, despite much speculation in the comments, we find no factual basis in this record or other persuasive reason for concluding that CATV origination is likely to cause such a loss in the near future (i.e., the next decade). In the Matter of AMENDMENT OF PART 74, SUBPART K, OF THE COMMISSION'S RULES AND REGULATIONS RELATIVE TO COMMUNITY ANTENNA TELEVISION SYSTEMS; AND INQUIRY INTO THE DEVELOPMENT OF COMMUNICATIONS TECHNOLOGY AND SERVICES TO FORMULATE REGULATORY POLICY AND RULEMAKING AND/OR LEGISLATIVE PROPOSALS, Docket No. 18397, FIRST REPORT AND ORDER, (October 24, 1969 Adopted), 20 F.C.C.2d 201, 203-204 (1969). (emphasis supplied). The Commission found that the "net loss of television service" argued by the broadcasters had no support in the record. 6/28/2011 5:59 AM Though not "fully persuaded that the Commission ha[d] made the correct decision in [the] case," he was inclined to defer to its judgment.126 The test that has emerged from Southwestern Cable and Midwest Video I -- a test that is not easy to implement -- is whether, if there is no precise statutory authority on the subject, whatever the Commission wants to do with respect to an electronic communication is "reasonably ancillary" to its statutory responsibilities. But, as the D.C. Circuit held in 1977 in HBO v. FCC, the opinions in both cases go no farther than to allow the Commission to regulate to achieve "long-established" goals or to protect its "ultimate purposes," and represent the "outer boundary" of FCC ancillary jurisdiction: That these cases establish an outer boundary to the Commission's authority we have no doubt. . . , and if judicial review is to be effective in keeping the Commission within that boundary, we think the Commission must either demonstrate specific support for its actions in the language of the Communications Act or at least be able to ground them in a well-understood and consistently held policy developed in the Commission's regulation of broadcast television.127 126 Id. As noted by the Midwest Video II Court, the Commission repealed its mandatory origination rule in December 1974. It explained: "Quality, effective, local programming demands creativity and interest. These factors cannot be mandated by law or contract. The net effect of attempting to require origination has been the expenditure of large amounts of money for programming that was, in many instances, neither wanted by subscribers nor beneficial to the system's total operation. In those cases in which the operator showed an interest or the cable community showed a desire for local programming, an outlet for local expression began to develop, regardless of specific legal requirements. During the suspension of the mandatory rule, cable operators have used business judgment and discretion in their origination decisions. For example, some operators have felt compelled to originate programming to attract and retain subscribers. These decisions have been made in light of local circumstances. This, we think, is as it should be." Report and Order in Docket No. 19988, 49 F.C.C.2d 1090, 1105-1106. 127 HBO v. FCC, 567 F.2d 9, 28 (D.C. Cir. 1977), cert. denied, Federal Communications Com'n v. Home Box Office, Inc., 434 U.S. 829, 98 S.Ct. 111, 54 L.Ed.2d 89 (U.S.Dist.Col. Oct 03, 1977) (NO. 76 1724), rehearing denied, Federal Communications Commission v. Home Box Office, Inc., 434 U.S. 988, 98 S.Ct. 621, 54 L.Ed.2d 484 (U.S.Dist.Col. Dec 05, 1977) (NO. 76 1724) . 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 35 Indeed, in the very next Supreme Court case about FCC ancillary jurisdiction, Midwest Video II, the Court confirmed that the "outer boundary" of jurisdiction had been reached in the two earlier cases and that the FCC had to be reined in.128 In Midwest Video II, the FCC had created rules requiring cable television systems to make available certain channels for access by public, educational, local governmental, and leased-access users, and to furnish equipment and facilities for access purposes. Under these new rules, cable operators were deprived of all discretion regarding who could exploit their access channels and what could be transmitted over such channels. Respondents contended that the regulations were not only qualitatively different from those heretofore approved by the courts but also contravened freedom of the press guarantees -- particularly the command of §3(h) of the Act (contained in the definition of "common carrier") that "a person engaged in . . . broadcasting shall not . . . be deemed a common carrier."129 The FCC rejected a challenge to the rules on jurisdictional grounds, maintaining that the rules would promote "the achievement of long-standing communications regulatory objectives by increasing outlets for local self-expression and augmenting the public's choice of programs." In the course of the rulemaking proceeding that led to Midwest Video II, the FCC dismissed the argument that "the access requirements [were] in effect common carrier obligations which are beyond our authority to impose," saying: So long as the rules adopted are reasonably related to achieving objectives for which the Commission has been assigned jurisdiction we do not think they can be held beyond our authority merely by denominating them as somehow 'common carrier' in nature. The proper question, we believe, is not whether they fall in one category or another of regulation--whether they are more akin to obligations imposed on common carriers or obligations 128 FCC v. Midwest Video Corp., 440 U.S. 689, 708-09 (1979) (rules requiring cable operators to provide equipment, facilities, and channel access to public not reasonably ancillary to FCC's regulation of broadcast and therefore outside FCC jurisdiction). Cf. Texas Utilities Electric Co. v. Federal Communications Commission, 997 F.2d 925, 936 (D.C.Cir.1993) (upholding FCC's authority, under a statute granting it power over "attachment by a cable television system" to utility poles, to regulate attachments for cables carrying nonvideo services, expressly formulating the issue as whether such cables fell "within the FCC's regulatory jurisdiction.") 129 47 U.S.C. § 153(h). 6/28/2011 5:59 AM imposed on broadcasters to operate in the public interest-- but whether the rules adopted promote statutory objectives.130 The FCC should not have been so dismissive. The Supreme Court found that the FCC's actions amounted to regulating cable systems as common carriers, and that authority for such regulation had to come specifically from Congress. The Court noted that Congress "did not regard the character of regulatory obligations as irrelevant to the determination of whether they might permissibly be imposed in the context of broadcasting itself," and observed that the Commission had been "directed explicitly by Sec. 3(h) of the Act not to treat persons engaged in broadcasting as common carriers."131 Significantly, the Court noted that "without reference to the provisions of the Act directly governing broadcasting, the Commission's jurisdiction under § 2(a)132 would be unbounded."133 "Though afforded wide latitude in its supervision over communication by wire, the Commission was not delegated unrestrained authority."134 FCC's rules, in this instance, were beyond its ancillary jurisdiction, and thus were vacated by the Court. Thus, in light of decisions following Southwestern Cable, the FCC must show that its exercise of Title I authority is for purposes that are necessary to the furtherance of its existing regulatory authority over common carriers, broadcasters, or cable companies (now covered by Title VI of the Act).135 130 Report and Order in Docket No. 20508, 59 F.C.C.2d 294, 299 (1976). (emphasis supplied). This argument is markedly similar to those made by the Commission in support of the IP-enabled services rulemaking. 131 Midwest II, at 702 (emphasis supplied) 132 The general jurisdiction statement under which Congress subjected to regulation "all interstate and foreign communication by wire or radio." Communications Act of 1934, § 2(a), 47 U.S.C. § 152(a). 133 citing United States v. Midwest Video Corp., 406 U.S., at 661, 92 S.Ct., at 1867 (opinion of Brennan, J.). 134 id. 135 See, e.g., Motion Picture Ass‟n of Am. v. FCC, 309 F.3d 796, 804 (D.C. Cir. 2002) (denying FCC authority under Title I to regulate broadcasting content because such authority is otherwise not granted in the Communications Act); North America Telecomm. Ass‟n, 772 F.2d at 1292 (stating that Section 4(i) authorizes the FCC to adopt rules to “the extent necessary to regulate effectively those matters already within the boundaries” of the Act). See also AT&T v. FCC, 487 F.2d 865, 872 (2d Cir. 1973) (stating that "Congress, rather than purporting "to transfer its legislative power to the unbounded discretion of the regulatory 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 37 B. Broadcast Flag ancillary jurisdiction The Commission argues that it has ancillary jurisdiction to adopt the broadcast flag rules because its Title I authority covers the "subject of the regulation" and its assertion of jurisdiction is "reasonably ancillary to the performance of its various responsibilities."136 First, it notes that the terms "radio communication" and "wire communication" are defined broadly to include not only transmission of the communication over the air or by wire, but also all "instrumentalities, facilities, apparatus and services" that are used for the "receipt, forwarding and delivery" of such transmissions -- 137 and reasons from this definition that receivers of DTV signals are covered within Title I. Second, the Commission lists several of its "long-established regulatory goals": making available a broadcasting system throughout the US, "increasing the number of outlets for community self-expression," "augmenting the public's choice of programs," shepherding the country's broadcasting system "into the digital age," and fulfilling Congressional expectations, expressed in the Communications Act, that the digital transition take place.138 Taken together, these elements make ancillary jurisdiction both reasonable and appropriate in the Commission's view. The Commission sharply disagrees with any requirement of explicit authority from Congress, and limits the ACRA precedent to its facts. Although the Commission concedes that this is the first time it has exercised its ancillary jurisdiction over equipment manufacturers in this manner, the Commission asserts that "the nation now stands at a juncture where such exercise of authority is necessary."139 Dissenters have noted that in the broadcast flag setting there is no statute to which FCC's jurisdiction could be ancillary.140 In both Southwestern and Midwest Video I, the Court relied on a general body,' intended a specific statutory basis for the Commission‟s authority”" (citation omitted). 136 Order at 14. 137 Order at 14, citing Section 3(33) of the Communications Act, which defines the term "radio communication" or "communication by radio" to mean "the transmission by radio of writing, signs, signals, pictures, and sounds of all kinds, including all instrumentalities, facilities, apparatus, and services (among other things, the receipt, forwarding, and delivery of communications) incidental to such transmission." Id. § 153(33). 138 Order at 14 (citing sources). 139 Order at 14. 140 Note Phillips filings. 6/28/2011 5:59 AM delegation of authority from Congress (section 2(a)) covering communications carriers -- into which category cable companies were deemed to fall. Finding that regulatory power existed, the Court then went on to constrain any exercise of FCC's imprecise statutory authority by requiring that its exercise be reasonably ancillary to general statutory obligations. The standard established by the Court was "reasonably ancillary," not merely "ancillary." The standard is already broad, and the term "reasonably," requiring some nexus with the Commission's statutory responsibility, must not be read out of it.141 Nor can there be deleted what the Court said ancillary actions must be "reasonably ancillary" to, i.e., "the effective performance of the Commission's various responsibilities for the regulation of television broadcasting."142 The problem addressed by Southwestern and Midwest I was that the general jurisdictional grant over carriers and broadcasters was not limited in any way -- hence the need for the "reasonably ancillary" limitation.143 Here, consumer electronics manufacturers are not engaged in "communications" or "broadcasts" of any kind -- and, indeed, are not carriers of any kind. The broadcast flag rules therefore do not have a nexus with the Commission's statutory responsibilities.144 Additionally, the rules 141 See North America Telecomm. Ass‟n, 772 F.2d at 1292 (stating that Section 4(i) authorizes the FCC to adopt rules to “the extent necessary to regulate effectively those matters already within the boundaries” of the Act); MPAA v. FCC, 309 F.3d 801, 806 (D.C. Cir. 2002) (stating that “[t]he FCC must act pursuant to delegated authority before any „public interest‟ inquiry is made under § 303(r)”) (emphasis added). Seee also AT&T v. FCC, 487 F.2d 865, 872 (2d Cir. 1973) (stating that "Congress, rather than purporting "to transfer its legislative power to the unbounded discretion of the regulatory body,' intended a specific statutory basis for the Commission‟s authority”" (citation omitted). 142 392 U.S. at 178, 88 S.Ct. at 2005. 143 See NARUC v. FCC reading of Southwestern: "The Court determined that the language of this introductory section stating that the Act pertains to "all interstate . . . communications by wire or radio" was sufficient basis for the Commission actions at issue. The authority recognized under s 152(a) was carefully "restricted to that reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting." According to the NARUC court, not even all the activiites of cable operators were then covered by this general jurisdictional grant, and for each assertion of jurisdiction FCC had to show "ancilliariness." Because cable is now covered specifically by Title VI of the Communications Act (as it was amended in 1996), the need for this doctrine is gone. 144 Cf. Nutritional Health Alliance v. Food and Drug Admin., 318 F.3d 92, 98 (2d Cir. 2003) (finding FDC lacked jurisdiction to promulgate unit-dose packaging regulations) ("reading the FDC Act in a liberal manner and working in 'constructive cooperation' with the FDA does not obviate our responsibility to 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 39 are not intended to protect a broadcast station's "contour" as in Southwestern; or to require, as in Midwest, the origination of programs, like broadcasters do; or to govern an activity involving the airwaves; or to protect the public interest in continued broadcast television services;145 or to protect broadcasting against "unfair competition" from these devices; or to allow the Commission "to perform with appropriate effectiveness" its responsibilities for broadcast television. To be "reasonably ancillary," the Commission's rules must be reasonably ancillary to something.146 As discussed above, the Commission arguably has no jurisdiction within its statutory grant, under the broadest view of that grant, to force encryption technologies on consumer electronics manufacturers, or to make such manufacturers into common carriers.147 The Act, however broadly read, contains no objectives so broad as to encompass whatever is necessary to get everybody watching digital ensure that the regulatory authority exercised by the FDA is actually rooted in the statute. It is the statutory text that delegates power to an administrative agency.") See Brown & Williamson, 529 U.S. at 132-33, 120 S.Ct. 1291; Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75, 79, 118 S.Ct. 998, 140 L.Ed.2d 201 (1998) ("[I]t is ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed."). ("When we interpret a statute and attempt to divine the intended scope of a delegation, statutory purpose, to the extent that such purpose is evident, sets boundaries and requires consistency between purpose and textual interpretation. Statutory purpose, however, is not in itself a source of delegated power. Thus, we cannot simply conclude that because the FDA is charged with regulation of food and drugs in order to protect public health, and its unit-dose packaging regulations were promulgated in response to a public health problem, therefore the FDA acted pursuant to delegated authority. Rather, we must look to the statutory text of the FDC Act.") 145 The Southwestern rule is that the very existence of local broadcasting must be threatened in order for jurisdiction to exist. 146 As Commissioner (now Chairman) Powell said in his dissent to the Commission's exercise of ancillary jurisdiction over the video description rules, "It is important to emphasize that section 4(i) is not a stand-alone basis of authority and cannot be read in isolation. It is more akin to a ""necessary and proper" clause. Section 4(i)'s authority must be " reasonably ancillary" to other express provisions." Report and Order, 15 F.C.C.R. 15,230, at 15,272-76 (Powell, dissenting). 147 Compare MPAA v. FCC, 309 F.3d 796 (D.C. Cir. 2002) (vacating video description rules) ("Contrary to the FCC's arguments suggesting otherwise, § 1, 47 U.S.C. § 151, does not give the FCC unlimited authority to act as it sees fit with respect to all aspects of television transmissions, without regard to the scope of the proposed regulations.") 6/28/2011 5:59 AM television.148 And, if the goal is to preserve "localism" and not "local broadcasters," the broadcast flag rules are "grossly" overinclusive.149 The rules indiscriminately protect each and every broadcast regardless of the quantity of local service available in the community or the potential effects of filetrading on it. If these major steps are legitimate goals, they should be established not by the Commission or the courts, but by Congress.150 Here, unlike the origination requirement of Midwest Video I (arguably the broadest expanse of ancillary jurisdiction), the flag requirements do not directly affect transmission in any medium which is of direct concern under the Commission's power over broadcasting.151 These requirements kick in after the transmission has already been received, and affect the end-user's ability to access that transmission inside the receiving machine.152 It is only slightly less difficult to locate secondary, indirect effects of the regulation which might arguably further a broadcast purpose. The only one FCC argues is the possibility that copying and transmission of DTV programs might reduce the flow of the resulting profits into the expansion of broadcast operations.153 The FCC says that its rulemaking was designed 148 As Philips suggested in its October 7 jurisdictional filing with the FCC, "Congress has not addressed FCC authority over content protection in the broadcast context, however, principally because broadcast television historically has been largely transmitted free and in the clear in contrast to cable where content generally is encrypted." 149 Home Box Office, Inc. v. FCC, supra, 567 F.2d at 50. 150 Midwest II 8th Circuit. Cf. Philip Weiser, Toward a Next Generation Regulatory Strategy, 35 Loyola Univ. Chicago L. J. 41, 51 ("Title I of the Communications Act (which sets forth the Act's basic mission) . . . provid[es] a broad scope of authority to the FCC"; Southwestern Cable upheld the FCC's regulation of the cable television industry, even without any specific statutory charge to do so, on the ground that its regulations were "reasonably ancillary" to its assigned responsibilities to regulate broadcasting.) 151 cf Naruc -- same point there. 152 compare hush a phone. 153 Throughout the flag proceeding, MPAA representatives stated that the goal of the flag proceeding was to protect "high value content": "[W]ithout the flag, high- value content is going to migrate to protected delivery systems like cable and satellite and free over-the-air television as we know it today will be a thing of the past." Fritz Attaway testimony at March 5, 2003 House hearing. Application of the flag is not limited to "high-value content," and there is no evidence that mandating adherence to the flag will encourage more or different content to migrate to television. Moreover, there arguably was never a golden age of television. "I invite you to sit down in front of your television set when your station goes on the air and stay there without a book, magazine, newspaper, profit- and-loss sheet or rating book to distract you--and keep your eyes glued to that set until the station signs off. I can assure you that you will observe a vast wasteland. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 41 to address the "vulnerability of digital broadcast content to indiscriminate redistribution" and the effects on programming that such redistribution might cause.154 Even if a court were to concede that lowered profits for broadcast operations were certain to appear unless the flag mandate was put in place, the broadcast flag's indirect way of serving that broadcast purpose would, by itself, require some extension of Midwest I. As the Eighth Circuit said in Midwest II, "A private industry does not 'require' federal regulation just because a federal agency says it does."155 C. IP-Enabled Services Ancillary Jurisdiction Similarly, in the IP-enabled services NPRM the FCC has confidently asserted that "Congress has provided the Commission with a host of statutory tools that together accord the Commission discretion in structuring an appropriate approach to IP-enabled services."156 The Commission states that "Title I of the Act confers upon the Commission ancillary jurisdiction over matters that are not expressly within the scope of a specific statutory mandate but nevertheless necessary to the Commission‟s execution of its statutorily prescribed functions," citing Southwestern Cable.157 And, "Ancillary jurisdiction may be employed, in the Commission's discretion, where the Commission has subject matter jurisdiction over the communications at issue and the assertion of jurisdiction is reasonably required to perform an express statutory obligation."158 The Commission appears to assume that its jurisdiction over all IP- enabled services is appropriate, and asks only which "regulatory requirements and entitlements, if any, should apply to each category of IP enabled service."159 At this point in the text of the NPRM, the Commission You will see a procession of game shows, violence, audience participation shows, formula comedies about totally unbelievable families, blood and thunder, mayhem, violence, sadism, murder, Western bad men, Western good men, private eyes, gangsters, more violence and cartoons. And, endlessly, commercials--many screaming, cajoling and offending. And most of all boredom." Newton N. Minow, Speech to the National Association of Broadcasters (May 9, 1961), reprinted in Newton N. Minow & Craig L. LaMay, Abandoned in the Wasteland 188 (1995). 154 Order at 4. 155 n.33. 156 NPRM, para. 46. 157 Id. 158 Id. 159 NPRM at para. 48. 6/28/2011 5:59 AM inserted a footnote that demonstrated just how broad it believed its jurisdiction to be: [O]ne might question what it would mean to apply E911 obligations on an Internet retailer, or to tariff an online newspaper offering. Similarly, some obligations may only be sensible in the context of VoIP service. However, to ensure that whatever distinctions we ultimately draw among different IP-enabled services are sound as a matter of law, technology, and public policy, we decline in this Notice to foreclose any particular approach, and therefore frame our questions in terms of all “IP-enabled services,” though some may only apply to particular types of service.160 The FCC is clearly considering whether it should apply E911 obligations to internet retailers, or tariff online newspapers. It does not question whether it could. The Commission cites Midwest Video I in connection with asking commentators to provide input as to whether any particular exercise of jurisdiction over IP-enabled services is reasonably ancillary to the Commission's statutory responsibilities, and provides the following parenthetical explanation of the case: "See, e.g., United States v. Midwest Video Corp., . . . (citing Southwestern Cable Co., . . .. ) (upholding Commission's exercise of its Title I powers to regulate community antenna television (CATV) when the growth of that service "threatened to deprive the public of the various benefits of [the] system of local broadcasting stations that the Commission was charged with developing and overseeing"). Although the FCC has not yet spelled out its reasoning with respect to its ancillary jurisdiction over IP-enabled services, filings made by some of the RBOCs provide a useful foreshadowing of the arguments the FCC is likely to make. The Commission will undoubtedly argue, as SBC has argued, that information services are "communications by wire and radio" and thus are subject to ancillary jurisdiction. They will point out that "as IP-enabled services and platforms proliferate and increasingly replace and draw traffic from legacy services and the PSTN, they will become a critical link in 'Nationwide . . . communications,' and they also will have a direct effect on the quality and sustainability of the PSTN."161 The Commission will point out that it has extended its ancillary jurisdiction to voicemail and 160 NPRM at para. 48, n.155. 161 SBC comments at 53. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 43 interactive menu services,162 to enhanced services,163 and to instant messaging services.164 The Commission's point will be that, just as they had to protect local broadcast from cable, and extend their jurisdiction to do so, it is now time to protect traditional telephone networks from IP-enabled services. They will assert, as they have in the CALEA NPRM, that IP-enabled services are competing with and replacing traditional telephone services. They will point out that the Southwestern Cable Court found that cable services were substituting for, rather than merely enhancing, local programming -- and that IP-enabled services now promise to replace and draw traffic from the PSTN. They will argue, in short, that IP-enabled services promise to destroy the benefits of the traditional telephone network, and that for this reason the Commission cannot discharge its responsibilities without authority over IP-enabled services.165 The FCC will argue that the only time it has lost a battle over ancillary jurisdiction has been when it has promoted arguably unconstitutional rules or rules violative of the Communications Act itself -- as in MPAA v. FCC, where the FCC pushed for constitutionally problematic video description rules, or in Midwest Video II, where the Commission attempted to impose on cable companies the kind of common carrier regulations that the Act would have prohibited had the parties involved been broadcasters rather than cable companies. And the FCC will cite its own broadcast flag rule in as another example of an assertion of ancillary jurisdiction. Here, the FCC will say, Congress has instructed us to require of telecommunications providers that they provide access to emergency services,166 access to people with disabilities,167 design access to law enforcement,168 and support of universal service.169 As these new IP- 162 use SBC fn114 for disability access order. 163 CCIA v. FCC, 693 F.2d 198 (upholding Commission's assertion of ancillary jurisdiction over enhanced services). 164 cite SBC fn 114. 165 cite Southwestern at 177. They will also cite Midwest Video II for the proposition that Southwestern regulation was imperative to prevent interference with the Commission's work in the broadcasting area, 440 U.S. 689-706-07, and GTE Serv. Corp. v. FCC for the proposition that in Southwestern Cable the authority of the FCC was based on the need to control the growth of community antenna systems in order that the Commission might accomplish its broad responsibility of orderly development of an appropriate system of local television broadcasting." 474 F.2d 724, 734 (2d Cir. 1973). 166 47 U.S.C. 615. 167 47 U.S.C. 255 168 CALEA. 169 need cite. 6/28/2011 5:59 AM enabled services arise and steal business from traditional telephone networks, these same policies must be imposed in order to protect telephone services. The FCC will assert that it is furthering long-held regulatory goals by exerting ancillary jurisdiction over IP-enabled services.170 In response, those providers of IP-enabled services who are brave enough to take on the FCC in public will say that recent court decisions make clear that Title I does not confer on the FCC power to make any rules about wires and radios that Congress did not expressly foreclose.171 Nor does Section 4(i) provide a "stand-alone basis of authority" to regulate.172 The commentators (or, perhaps, litigants) will point to Midwest Video II's statement that any "ancillary" rules promulgated by the FCC must be "necessary to ensure the achievement of the Commission's statutory responsibilities."173 Here, where FCC's responsibility is to "promote the accessibility and universality of transmission,"174 regulation of most IP- enabled applications and services will not be necessary to the exercise of that power. Most IP-enabled applications and services are distinct from the structure that provides "transmission." Indeed, on taking a closer look at Midwest Video II these opponents of FCC's exercise of ancillary jurisdiction over IP-enabled services may point out that every single one of the "social policies" proposed by the FCC is something that has been imposed specifically on telecommunications 170 The FCC may limit itself to asserting ancillary jurisdiction over all IP-enabled services, but actually imposing rules only with respect to those services that connect to the PSTN or use numbers assigned via the North American Numbering Plan (NANP). 171 MPAA v. FCC, 309 F.3rd at 806-809 (D.C. Cir. 2002) ("[T]he terms of [the statute] and the case law amplifying it focus on the FCC's power to promote the accessibility and universality of transmission." "the FCC can point to no statutory provision that gives the agency authority to mandate video description[s].") 172 Thomas W. Merrill & Kathryn Tongue Watts, Agency Rules With the Force of Law, 116 Harv. L. Rev. 467 (2002) (arguing that rulemaking provisions that do not include provisions for sanctions were originally understood to provide internal housekeeping rulemaking authority, and that in the aftermath of Mead this convention should be adopted when interpreting facially ambiguous rulemaking grants such as 4(i)); MSN comments in IP-enabled services rulemaking, at 10. MSN is one of very few companies that has been willing to say anything negative about FCC's ancillary jurisdiction in this area. 173 Midwest Video II, at 706 (emphasis added). 174 MPAA v. FCC at 804. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 45 services providers -- on common carriers.175 The Commission lacks authority to impose these policies on non-common carriers. Indeed, Congress has explicitly elected not to impose common carrier obligations on entities whom it wishes to have editorial discretion. Congress has said exactly the opposite in Section 230 of the same Communications Act that the FCC is charged with adminstering. Congress wants providers of IP- enabled services to have broadcaster-like editorial discretion: 47 U.S.C. 230 (a) FINDINGS.--The Congress finds the following: (1) The rapidly developing array of Internet and other interactive computer services available to individual Americans represent an extraordinary advance in the availability of educational and informational resources to our citizens. (2) These services offer users a great degree of control over the information that they receive, as well as the potential for even greater control in the future as technology develops. (3) The Internet and other interactive computer services offer a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity. (4) The Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation. (5) Increasingly Americans are relying on interactive media for a variety of political, educational, cultural, and entertainment services. (b) POLICY.--It is the policy of the United States-- (1) to promote the continued development of the Internet and other interactive computer services and other interactive media; (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation . . . The "social policies" under consideration in the NPRM -- disability access, law enforcement access, universal service support,176 privacy mandates, 175 As the Commission states, "The Commission has concluded, and courts have agreed, that the "telecommunications service" definition [found in the Communications Act] was "intended to clarify that telecommunications services are common carrier services." NPRM at 19, citing Cable & Wireless, PLC, Order, 12 FCC Rcd 8516, 8521, para. 13 (1997); see also Virgin Islands Tel. Corp. v. FCC, 198 F.3d 921, 926-27 (D.C. Cir. 1999). 176 47 U.S.C. 254(d). 6/28/2011 5:59 AM etc. -- arguably both (1) fly in the face of Section 230's policies and (2) are the kinds of common carrier obligations that the Act itself would prohibit if providers of IP-enabled services were broadcasters rather than software developers. IV. CHEVRON DEFERENCE Twenty years ago, in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the Supreme Court created a new set of tests for determining when courts should defer to the interpretation of statutes by administrative agencies. The idea behind Chevron is that when an agency has been charged with administering a broad statute its construction of that statute should be deferred to by a reviewing court.177 The Supreme Court has provided us with a two-step test for judicial consideration of an administrative agency's construction of its regulatory statute. At step one, a court must determine "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress."178 If Congress's intent is ambiguous, then at step two the court must determine "whether the agency's answer is based on a permissible construction of the statute."179 In other words, when an administrative agency charged with administering a broadly worded statute offers regulations interpreting that statute or giving concrete guidance as to its implementation, courts treat its interpretation of the statute's breadth as controlling unless it presents an unreasonable construction of the statutory text. Justice Stevens supplied three rationales for such deference. First, because Congress has delegated power to the agency in question, such delegations include agency discretion to make choices -- and those choices 177 Chevron itself arose out of a construction of the Clean Air Act Amendments of 1977 by the Environmental Protection Agency. These amendments had required states that had not achieved specific air quality standards to take certain actions -- including establishing permit programs before allowing the construction of "new or modified major stationary sources" of pollution. The EPA issued a rule stating that an entire "industrial grouping" could be considered to be a "stationary source." On appeal, the D.C. Circuit vacated EPA's regulations, reasoning that EPA's definition would not further "the purposes of the nonattainment program" that Congress had established. The Supreme Court reversed, setting forth the now- familiar two-step process for judicial review of agency actions involving legal questions concerning an "agency's construction of the statute which it administers." 178 Id. at 842-843. 179 Id. at 843. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 47 should be respected and deferred to. Second, an agency will have expertise in the area covered by its statute, and its reasonable determinations should be deferred to by a court that has no such expertise. Third, because courts are not part of a political branch, they should defer to the reasonable decisions made by an agency that is part of a political branch and thus is more accoutanble to the public. A. Delegation Arguably, by leaving a statute ambiguous, Congress is letting the agency make choices about how to interpret it. The domain of the statute, once established, becomes the playground of the agency.180 Courts should defer from second-guessing an agency's determinations within that domain. Thus, there is an assumption that should be read into the Chevron test that there are choices for the agency to make -- that, within a general grant of agency jurisdiction, the agency has specific jurisdiction to interpret its enabling statute. "From this congressional delegation derives the [agency']s entitlement to judicial deference."181 "An implied delegation of a law-declaring function is especially likely where . . . the question is interstitial, involves the everyday administration of the statute, implicates no special judicial expertise, and is unlikely to affect broad areas of the law."182 But where the domain itself is in question, and where the agency appears to be substantially expanding that domain, Congressional intent to let the agency go its own way may not exist. Scholars have noted that Congress may not have had any delegation in mind when creating an ambiguous statute, and that the facially-appealing "interpreting ambiguity" rationale for Chevron may fall apart on closer examination.183 Nevertheless, this reason for Chevron provides Congress with a useful background premise against which to legislate: ambiguity will be resolved by the agency to which Congress has delegated overall 180 Chevron states: "If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation." 467 US at 843-44. 181 Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 698 (1991); see also Adams Fruit Co. v. Barrett, 494 U.S. 638, 649 (1990) ("A precondition to deference under Chevron is a congressional delegation of administrative authority.") 182 St. Luke's Hosp. v. Secretary of Health & Human Servs., 810 F.2d 325, 331 (1st Cir. 1987) (Breyer, J.). Bradley VA article: "Under Chevron, courts presume that, when Congress charges an agency with administering an ambiguous statute, Congress is delegating lawmaking power to the agency. It is this delegation that requires courts, from a formal separation-of-powers standpoint, to defer to the agency." 183 Scalia. Bradley. Merrill. 6/28/2011 5:59 AM power in the relevant statute.184 B. Agency expertise The Chevron test was developed to apply in situations in which a federal agency has unique competency to fill gaps in its own governing statute that Congress has left for it to fill.185 As Justice Breyer has recently noted, courts often defer to agency questions that involve complicated technical or economic considerations because generalist judges are not up to the task of second-guessing the agency's reasoning -- particularly to declare that the reasoning was irrational.186 The Chevron Court explained that an agency that was deeply involved in the quotidian workings of its statute would likely be better than a court to answer questions that required "more than ordinary knowledge respecting the matters subjected to agency regulations."187 This "expertise" story is one of the most frequently cited reasons for Chevron deference.188 Justice Scalia has suggested that this rationale is not sensible: If I had been sitting on the Supreme Court when Learned Hand was still alive, it would similarly have been, as a practical matter, desirable for me to accept his views in all of his cases under review, on the basis that he is a lot wiser than I, and more likely to get it right. But that would hardly have been theoretically valid. Even if Hand would have been de facto superior, I would have been ex officio so. So also with judicial acceptance of the agencies' views.189 Whatever other failings the "expertise" rationale has, it fits with the 184 Scalia, 1989 Duke L J at 517. "Congress now knows that the ambiguity it creates, whether intentionally, or unintentionally, will be resolved, within the bounds of permissible interpretation, not by the courts but by a particular agency, whose policy biases will ordinarily be known." 185 Id. at 844, 104 S.Ct. 2778. 186 Breyer speech. 187 Ibid. See also Pension Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633, 651-652, 110 S.Ct. 2668, 2679, 110 L.Ed.2d 579 (1990) ( "[P]ractical agency expertise is one of the principal justifications behind Chevron deference"); 188 See, e.g., Williams v. Babbitt: "an agency's interpretation is generally accorded Chevron deference because the agency has superior expertise in the particular area." 189 Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J. 511 (1989). 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 49 urgent desire of the mid-1980s Chevron Court to create a unitary rule designed to discourage judicial inconsistencies. The authors of Chevron were concerned that the many administrative rulemakings that were flowing from the agencies were too much for courts to review adequately, and wanted to be sure that those that were reviewed were not dealt with under ad hoc rules.190 C. Political accountability Agencies are generally understood to be politically accountable, whereas courts are not. For this reason, the Chevron Court urged deference by courts to agency determinations. As the Court put it: (A)n agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices. . . . In other words, when Congress has created an ambiguity in an authorizing statute for an administrative agency, the resolution of that ambiguity involves a policy judgment. Policy judgments should be made by one of the two political branches of government -- the Congress or the Executive. Here, because Congress has deliberately not decided this policy question, it has to be answered by the Executive branch -- of which the agencies are a part.191 Again, Justice Scalia has sharply questioned this rationale for Chevron, saying: 190 See Strauss, One Hundred Fifty Cases Per Year: Some Implications of the Supreme Court's Limited Resources for Judicial Review of Agency Action, 87 COLUM.L.REV. 1093, 1118-26 (1987). 191 Scalia again. For commentary on this position, see Douglas W. Kmiec, Judicial Deference to Executive Agencies and the Decline of the Nondelegation Doctrine, 2 Admin L J 269, 277-78, 283-85 (1988); Kenneth W. Starr, Judicial Review in the Post-Chevron Era, 3 Yale J Reg 283, 308, 312 (1986). As discussed infra, the FCC is not an executive agency, and thus this rationale for Chevron deference is inapposite. 6/28/2011 5:59 AM If, in the statute at issue in Chevron, Congress had specified that in all suits involving interpretation or application of the Clean Air Act the courts were to give no deference to the agency's views, but were to determine the issue de novo, would the Supreme Court nonetheless have acquiesced in the agency's views? I think the answer is clearly no, which means that it is not any constitutional impediment to "'policy-making"' that explains Chevron.192 At any rate, the political explanation for Chevron persists. It takes the form of an argument that law (as in rulemakings) should be created by politically accountable actors rather than courts.193 D. Skidmore multi-factor deference Professors Merrill and Hickman have argued persuasively that the choice is not Chevron deference or no deference at all.194 Courts have a third option: to choose to use the multi-factor test set forth in Skidmore v. Swift.195 This position is strongly supported by the majority opinion in Christensen v. Harris County.196 Christensen concerned a reading of the Fair Labor Standards Act197 by the Department of Labor. The DOL took the position that state governments cannot unilaterally require employees to be paid for overtime in the form of "comp time" instead of money, and asserted that its view in this regard (supported by an opinion letter by a DOL staff member) should be deferred to under Chevron.198 The Supreme Court, in an opinion by Justice Thomas, disagreed, finding that the staff interpretation was not entitled to deference because it did not have the "force of law."199 Justice Thomas went on to say that the letter should be assessed under the existing 192 Id at 515-516. 193 Pierce, The Role of the Judiciary in Implementing an Agency Theory of Government, 64 N.Y.U.L.REV. 1239, 1251-56 (1989) (cited in Caust-Ellenbogen); cf. United States v. Curtiss-Wright Export Corp., 299 U.S. 304 (1936) (foreign affairs decisions are more political than legal in nature and thus are properly made by a politically accountable branch of government.). 194 Thomas W. Merrill and Kristin E. Hickman, Chevron's Domain, 89 GEOLJ 833 (2001). 195 323 U.S. 134, 140 (1944). 196 529 U.S. 576 (2000). 197 29 U.S.C. § 207(o) (2000) 198 Merrill & Hickman, Chevron's Domain, 89 Geo. L.J. 833, 845-846. 199 Christensen, 529 U.S. at 586-88. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 51 "power to persuade" deference standard found in Skidmore -- and that the letter was unpersuasive.200 Justice Breyer, in dissent, generally agreed with Justice Thomas's framework but disagreed with the majority's conclusions. Breyer would have found the letter both persuasive under Skidmore and entitled to deference under Chevron.201 Importantly, Breyer underlined the continuing relevance of the 1944 Skidmore decision, stating that in the absence of a Congressional delegation that would prompt Chevron deference, courts should use the multi-factor analysis set forth in Skidmore -- including examining the agency's expertise, the thorough consideration the agency had given to the topic, and the agency's consistency of views.202 The following section examines the FCC's ancillary jurisdiction assertions in light of the underlying principles of Chevron and (assuming no explicit delegation has taken place) Skidmore. E. Broadcast Flag deference Which of these principles underlying deference are most persuasive in the broadcast flag setting? i. Chevron Delegation. FCC has conceded that Congress has not made explicit its authority to regulate devices to require them to include authorized encryption elements. FCC's key argument is that its jurisdiction is "ancillary" to the broad authority implied by Congress's expectation that the DTV transition take place. It states: "The statutory framework for the transition, coupled with the support in the legislative history and the Commission‟s ongoing and prominent initiatives in the area, make it clear that advancing the DTV transition has become one of the Commission‟s primary responsibilities under the Communications Act at this time." In other words, because the FCC has moved forward with initiatives related to the DTV transition, and 200 Id. 201 Id. at 597. 202 Justice Jackson's opinion in Skidmore states: "We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." Id at 140 6/28/2011 5:59 AM Congress has not said to stop, Congress impliedly has acceded to any actions FCC deems appropriate in this connection. This argument seems to fall short of sustaining the "delegation" rationale for Chevron deference, because it depends in important part on Congressional inaction rather than action. FCC is clearly not arguing that any ambiguity in the Communications Act indicates that it has been granted rulemaking authority by Congress. To the contrary: FCC is pointing towards specific definitions contained in the Act and claiming that they support its exercise of ancillary jurisdiction because direct statutory jurisdiction is absent. The FCC's position in the flag setting is reminiscent of the facts in US v. Mead. In Mead, the United States Customs Service issued a tariff classification ruling that had the result of imposing a tariff on a product imported by respondent. Classifications made by the Customs Service are not viewed by Customs as being binding on third parties; indeed, such classifications have no real legal force.203 The Mead Court found that Congress had given no indication that it meant to delegate authority to Customs to issue classification rulings with the force of law.204 Thus, the Court was able to deny Chevron deference to the agency's imposition of such a ruling on Mead.205 In Mead, the Court found that administrative implementation of a particular statutory provision qualified for Chevron deference "when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority."206 But Mead limited the types of agency interpretations that are binding on courts.207 Here, similarly, FCC's claim of general "ancillary" rulemaking powers under Title I of the Communications Act does not jibe with express Congressional delegations of rulemaking powers already provided for under Title II (common carriers), Title III (broadcasters), or Title VI (cable operators). If section 4(i) of Title I is read the way FCC urges it be read 203 Id. 204 Id. at 2174. 205 The Court went on to find that Skidmore deference might be appropriate ("an agency's interpretation may merit some deference whatever its form, given the "specialized experience and broader investigations and information" available to the agency.") 323 U.S. at 139. 206 121 S.Ct. 2164 (2001). 207 cite to Bamberger article; cf Weiser, 35 Loyola Univ. Chicago L. J. 41, 50 (2003) ("Mead reminds courts that Congress defines the scope of agency authority and that courts reviewing agency decisions -- unlike common law courts -- do not possess the authority to make policy decisions.") 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 53 ("we can make any rules that are related to our statutory mandate"), why were the other express delegations necessary? Or, put the other way, if Section 4(i) is really an internal, housekeeping provision, as Professors Merrill and Watts have urged, can it also be read as an express delegation of broad legally-binding rulemaking authority? Section 4(i), after all, says "[t]he Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions." The words "rules and regulations" in this section could mean rules that have legally-binding effect on everyone, or could mean interpretive rules that are not legally binding. Professors Merrill and Watts argue that the latter reading of these words makes the most sense in light of the APA's history, and so the existence of Section 4(i) does not meet the Mead threshold inquiry.208 In either case, FCC's "ancillary" interpretation is not necessarily binding on courts -- and should not necessarily be deferred to under Chevron. Moreover, the broadcast flag rule is likely driven by copyright concerns -- and Congress has unquestionably not delegated copyright authority to the FCC. Where an agency is construing a statute outside its domain, Chevron deference is inappropriate. ii. Chevron and Skidmore: Domain Concerns There is a long history in this country of content providers attempting to control technologies that permit copying of their material. Many have cited the content industry opposition to VCRs in the mid-1980s, during which Motion Picture Association of America President Jack Valenti asserted that VCRs would be the death of the movie industry. In 1984, the Supreme Court decided consumers would have the right to buy Betamax units. But the Betamax dispute was not the first such fight. Other versions of the "content industry" fought the introduction of the player piano,209 the radio,210 the photocopier,211 cable television,212 the DAT recorder,213 and 208 Merrill and Watts, at 471. 209 1908: result, compulsory license. “Once a copyright owner authorized a pianola or record company mechanically to copy his musical composition,” Goldstein writes, “any other company was free to make its own recording of the composition by . . . paying the copyright owner two cents for each record it produced.” Paul Goldstein. 210 1931; result, BMI/ASCAP licensing (functions like a compulsory license). 211 1968 litigation didn't result in any government action. from http://uainfo.arizona.edu/~weisband/411_511/copright_background.html#REF Williams & Wilkins Co.,.The 1976 copyright revision specifically provided that 6/28/2011 5:59 AM MP3 players.214 The content industry is legitimately afraid of unauthorized online transmission of digitized versions of expensively-produced content.215 The music industry claims to have lost 40% or more in annual revenues in recent years, and blames this loss on online filesharing. New, inexpensive legitimate services are emerging online for downloading music, and the music industry seems to have embraced the idea that you can compete with "free".216 But the video content industry may have absorbed so far only the first part of the music industry warning: the internet poses an enormous threat of piracy and needs to be controlled.217 The MPAA frequently libraries could reproduce a single copy of a work if the reproduction was not intended for commercial gain. In addition, it allowed libraries to make copies for interlibrary exchange -- just as the National Library of Medicine had done -- as long as the copying did not substitute for a subscription or purchase. And the law immunized libraries from liability for patrons' unsupervised use of copying machines as long as a copyright warning was posted nearby. 212 1968: result, compulsory license. 213 1990: result, levy plus SCMS mandate.(The one exception was the SCMS mandate on DAT recorders; the failure of DAT has been ascribed by many to the mandate.) ended in 1992 with the passage of the Audio Home Recording Act.The law allowed “consumers” to make single copies of sound recordings for “non- commercial use” without running afoul of copyright law. In return, manufacturers of digital tapes and tape decks must pay a royalty to the U.S. Copyright Office for distribution to copyright holders. In addition, the law prohibits the manufacture of digital tape decks that can copy copies thus, reducing the potential for mass- quantity reproductions of original tapes. 214 1998, Through the decade, the recording industry waged what one court called “a well-nigh constant battle” against so-called pirate Web sites with cease-and- desist letters and litigation. The comment by the federal appeals court in San Francisco came in a June 1999 decision that rejected the recording industry's attempt to outlaw a portable music player capable of playing audio MP3 files downloaded from a personal computer. Recording Industry Association of America v. Diamond Multimedia Systems, Inc., decided June 15, 1999, by the 9th U.S. Circuit Court of Appeals. no government mandate resulted. 215 Fritz Attaway testimony March 2003: "The greatest challenge is to maintain control over the distribution of movies and TV shows in order to recoup the cost of production and spur investment in new projects." 216 iTunes huge success; walmart new service. 217 from 1999 news report: House Telecom Subcommittee reopened debate on home copying that many had thought had been substantially closed with passage year ago of Digital Millennium Copyright Act. In testimony before subcommittee Oct. 28, MPAA Pres. Jack Valenti said Internet poses threat to motion picture industry through pirated digital files. He said movie industry is country's greatest trade asset and said: "Our ramparts are being breached." He said advent of broadband technology would increase ability of pirates to download movies, and 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 55 reminds audiences that the video content industry is extremely important to this country's economy [facts from Valenti testimony over the years]. In an effort to ensure that people understand how dangerous peer to peer filetrading is to this key industry, the MPAA has tied online file trading to privacy invasions, pornography, and terrorism.218 Is the broadcast flag another fight against a new technology that permits copying -- in this case, the internet? Broadcast television has traditionally been broadcast "in the clear," without encryption. It is an article of faith that broadcast has been available to anyone who could demodulate the signal with whatever homespun equipment was available. (In the absence of a pre-existing statute, FCC has not to date made rules about what kind of equipment needs to be used to pick up that broadcast signal.) The content industry has not attempted to shut down or control the copying and online transmission of analog copies of broadcasts.219 Indeed, the copying of broadcast content generally by consumers has not been a subject of unrest, dispute, or litigation since the 1980s. It must not be that it is broadcast television the studios are trying to protect -- and, indeed, the broadcasters have not been particularly active participants in the flag proceeding.220 It must be that they are trying to protect against online transmission of content generally. Because the decentralized, evolving internet cannot be sued or shut down, the industry is going after the machines that can access the internet or produce digital content that can be distributed online. And they are using the mandated digital transition in the television context to regulate these devices.221 gave several examples of pirated versions of films, some not yet available on video. 218 http://lists.essential.org/pipermail/ecommerce/2003q1/000967.html and http://www.senate.gov/~gov_affairs/index.cfm?Fuseaction=Hearings.Detail&Heari ngID=120. Valenti statement is: http://www.senate.gov/~gov_affairs/index.cfm?Fuseaction=Hearings.Testimony& HearingID=120&WitnessID=415. 219 need evidence about analog copying. 220 A search of the FCC docket in the flag proceeding for filings on behalf of the National Association of Broadcasters or NAB revealed only a last-minute letter referring to the copyright protection of local news programs and participation in jurisdictional meetings with the MPAA lawyers. To the extent that broadcasters are parts of conglomerates that include content companies, of course, they backed the flag. NAB backed it for that reason. But they're in thrall to Content, even though their direct revenue stream isn't from content sales but from advertising sales. They fear that the content companies will yank "high-value content" absent protection. basically, however, they've been given their marching orders by the prime movers, who are the content companies 221 The transition appears to be moving ahead on the broadcasters' side, although the expense of construction is great and many stations have asked for extensions of 6/28/2011 5:59 AM Is the broadcast flag about protecting copyright rights? The broadcast flag proceeding began in August 2002 entitled "In the Matter of Digital Broadcast Copy Protection."222 The NPRM clearly stated in its first paragraph that the issue with which the FCC was concerned was about protecting copyright rights: Digital copy protection, also referred to as digital rights management, seeks to prevent the unauthorized copying and redistribution of digital media. Without adequate protection, digital media, unlike its analog counterpart, is susceptible to piracy because an unlimited number of high quality copies can be made and disbibuted in violation of copyright laws. In the absence of a copy protection scheme for digital broadcast television, ontent providers have asserted that they will not permit high quality programming to be broadcast digitally. Without such programming, consumers may be reluctant to invest in DTV receivers and equipment, thereby delaying the DTV transition.223 The FCC's logic appears to have been that without a broadcast flag scheme in place, "high value" content would migrate away from broadcast and towards cable and satellite systems -- in which content was encrypted before it was sent out, and thus protected against infringement.224 The FCC FCC's aggressive deadlines. "As of October 3, 2003, a total of 1,605 television stations in all markets (representing approximately 95% of all stations) have been granted a DTV construction permit or license. There are a total of 1,258 stations now on the air broadcasting a digital signal, 563 with licensed facilities or program test authority and 695 operating pursuant to special temporary authority (“STA”) or experimental DTV authority (representing approximately 75% of all stations)." October 23, 2003 order, In the Matter of DTV Build-out Requests for Extension of the Digital Television Construction Deadline, Commercial Television Stations With May 1, 2002 Deadline. In 2003, at least 2500 hours of sports and primetime prgramming were broadcast in HD format, and the number of stations broadcasting a digital signal were 1,011 in 201 markets serving 99% of U.S. TV households. 222 See, e.g., NPRM. 223 August 9, 2002 NPRM, para. 1. 224 Ferree's statement in March 2003 supports this understanding: "[M]any content providers say we are living on borrowed time. They assert that soon we will reach a critical mass of DTV receivers and fast broadband connections to permit the widespread unauthorized redistribution of broadcast DTV content over the Internet - the “Napsterization” of video, as some have called it. When that happens, these parties argue, they will be forced to protect their high-value content by removing them from broadcast distribution channels and making them available only on better-protected digital platforms like cable and satellite." 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 57 was clearly concerned about protecting the copyright rights of the content owners. In March 2003, after initial and reply comments had been filed in the flag proceeding, the House of Representatives' subcommittee overseeing intellectual property law held a hearing about the relationship of the broadcast flag rulemaking to copyright law.225 Rep. Lamar Smith, R-Texas, chair of the subcommittee, expressed concern that the FCC might be making rules that affected the Copyright Act."226 And Rep. Howard Berman, D-Calif., said that "the FCC should not attempt to interpret copyright law in the course of its rule-making."227 The chief of the FCC's Media Bureau,228 Kenneth Ferree, testified at this hearing, and stated that all FCC was doing was protecting copyright rights in high value content -- because the content on DTV would have to be better than that delivered in analog settings in order to encourage consumers to buy DTV sets. Ferree also made clear that more HD and high-value content was already being 225 House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property Hearing on "Copyright Piracy Implications of the Broadcast Flag," March 6, 2003. 226 CNET story. 227 Berman statement: "Numerous comments have been filed asking the FCC to ensure that any broadcast flag technology allows consumers to make various uses of the digital TV programming it protects. These commentators purport to cite various copyright law doctrines, including first use, as the Chairman discussed, and first sale, as guaranteeing consumer utilization of copyrighted TV programming in the ways they hope to protect. It is these claims about copyright law and the role of the FCC in analyzing them that gives me pause about the broadcast flag rulemaking. I am unaware of any precedent for the FCC interpreting the Copyright Act as part of an FCC rulemaking or in any other capacity, nor am I aware, for that matter, of the FCC ever mandating that copyright owners surrender any of their exclusive rights to consumers. . . . When Congress itself has placed limitations on the exclusive rights of copyright owners in the course of mandating certain technologies, I am unaware of any precedent for a Federal agency doing so.. . .The FCC doesn't have expertise in this particular area, and so I am opposed to the FCC attempting to interpret, regulate, or otherwise limit the exclusive rights of copyright owners in the course of its broadcast flag rulemaking." March 6, 2003 hearing testimony, "Piracy Prevention and the Broadcast Flag," hearing before the Subcommittee on Courts, the Internet, and Intellectual Property of the House Committee on the Judiciary. 228 "The FCC has five commissioners, who are appointed by the President and confirmed by the Senate. Under the commissioners are various operating bureaus, one of which is the Media Bureau. The Media Bureau has day-to-day responsibility for developing, recommending and administering the rules governing radio and television stations." http://www.fcc.gov/mb/audio/decdoc/public_and_broadcasting.html 6/28/2011 5:59 AM broadcast digitally. But he asserted that without copy protection mechanisms in place this high-value content would migrate to protected platforms like cable and satellite. "This is how the Commission became involved in these copy protection issues," he said: "We have no desire to duplicate the work of the U.S. Copyright Office. But the Commission does have an interest in keeping the digital television transition on track and maintaining the vitality of our free, over-the-air television service. So when content providers, Members of Congress and others warned that we may be on the verge of losing compelling broadcast content, these claims have to be taken seriously." (emphasis supplied). The motion picture industry made much the same point about the copyright relationship to the flag proceeding during that hearing: "The greatest challenge facing the motion picture industry today is the widespread trafficking of movies and television shows on the Internet, mostly through so-called peer-to-peer “file sharing.” The term “file sharing” is a popular euphemism for copying, which in the case of copyrighted motion pictures and TV programming, is stealing.. . . Implementation of the Broadcast Flag is a necessary, but by no means complete, solution to the problem of Internet trafficking in infringing movies and other copyrighted material."229 It appears that the flag rulemaking was focused on the protection of copyright rights from the beginning. In the final rule issued by the FCC in November 2003, the FCC suddenly revised its view on the relationship between copyright protection and the broadcast flag, changing the name of the proceeding from "Digital Broadcast Copy Protection" to "Digital Broadcast Content Protection." The FCC asserted that this name change was designed "to reflect that the redistribution control regime adopted herein for digital broadcast television in no way limits or prevents consumers from making copies of digital broadcast television content."230 But the name change may also have been 229 Attaway testimony, http://commdocs.house.gov/committees/judiciary/hju85490.000/hju85490_0.htm. Mr. Attaway is referring to the MPAA's ambitious goal of closing every "analog hole" that users could exploit to avoid digital rights management/encryption schemes. Cite to Analog Hole CPTWG meetings. 230 Order at 6. This statement, although facially true, is subject to a material caveat: all copying and storing will be permitted, but only by "compliant" devices that are sufficiently secure and nontamperable and incorporate "authorized 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 59 aimed at avoiding the charge that the FCC was interfering in any way with copyright law. In its Order, the FCC asserted that "the scope of our decision does not reach existing copyright law. The creation of a redistribution control regime establishes a technical protection measure that broadcasters may use to protect content. However, the underlying rights and remedies available to copyright holders remain unchanged. In the same manner, this decision is not intended to alter the defenses and penalties applicable in cases of copyright infringement, circumvention, or other applicable laws."231 In other words, the FCC asserted that although its mandated protection of content was designed to protect exclusive copyright rights by guarding against any unauthorized uses of content, and was premised on the importance of these copyright rights, the proceeding had nothing to do with copyright law.232 It is at least possible that a court would conclude that this proceeding was "about" copyright protection, and that therefore FCC's interpretation of the protection necessary for copyrighted works was not to be deferred to under Chevron. Clearly, no delegation of "copyright" authority has been granted to the Commission. iii. Chevron and Skidmore Agency Expertise. FCC has conceded that it is moving into uncharted territory in the broadcast flag proceeding: "We recognize that the Commission‟s assertion of jurisdiction over manufacturers of equipment in the past has typically been tied to specific statutory provisions and that this is the first time the Commission has exercised ancillary jurisdiction over consumer equipment manufacturers in this manner."233 technologies" that prevent against onward transmission (including transmission over the internet) of any flagged content. 231 Order at 6. 232 The Media Bureau's own description of its mandate states: "We do not regulate information provided over the Internet. . . . We cannot regulate the production, distribution and rating of motion pictures; the publishing of newspapers, books, or other printed material; or the manufacture and distribution of audio and video recordings. We do not administer copyright laws." The Public and Broadcasting, June 1999 FCC publication, available online at http://www.fcc.gov/mb/audio/decdoc/public_and_broadcasting.html#TOC. 233 Order at 17, citing statutes on which assertion of jurisdiction has been based in the past. 6/28/2011 5:59 AM "[E]ven though this may be the first time the Commission exercises its ancillary jurisdiction over equipment manufacturers in this manner, the nation now stands at a juncture where such exercise of authority is necessary."234 In addition to the newness of the territory in the jurisdictional sense, FCC has no particular expertise in designing or mandating encryption control rules for consumer electronics devices, PCs, IT devices, digital storage devices or any other form of device. As the IT Coalition stated in its February 2003 comments, the FCC should have avoided "the resource- intensive effort of developing technology rules in a field wholly outside its regulatory expertise."235 The FCC was heavily reliant on filings and advice from the MPAA in formulating its proposed rules.236 It is beyond question that FCC was not calling on existing "encryption to be applied to consumer electronics devices" expertise in creating these rules -- it had never done this before. iv. Chevron Political Accountability. Accountability drives Chevron deference. The argument is that the political branches of government -- the Congress and the Executive -- are the proper authorities to resolve ambiguities in agencies' authorizing statutes because they will be responsive to the electorate, and that for this reason the courts should get out of the way and defer to whatever policy decisions are made by those bodies. All of the Chevron Justices joined in acknowledging the importance of political accountability: "While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make . . . policy choices."237 But Chevron dealt with the EPA, an executive branch agency whose head can be removed by the President. How relevant is the 234 Id. 235 Press release, February 19, 2003, Washington, D.C., by the IT Coalition (made up of the Business Software Alliance (Adobe, Apple, Autodesk, Avid, Bentley Systems, Borland, Cisco Systems, CNC/Mastercam, Dell, Entrust, HP, IBM, Intel, Internet Security Systems, Intuit, Macromedia, Microsoft, Network Associates, Novell, PeopleSoft, SeeBeyond, Sybase, and Symantec) and the Computer Systems Policy Project (Dell Computer Corporation, Intel Corporation, Hewlett- Packard Company, Motorola Corporation, NCR Corporation, IBM Corporation, EMC Corporation, and Unisys Corporation). http://www.bsa.org/usa/press/newsreleases/IT-Coalition-Issues-Filing-Calling-on- FCC-to-Hold-Off-on-Proposed-Broadcast-Flag.cfm 236 Cite many MPAA ex parte meetings. 237 Chevron, 467 U.S. at 865. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 61 FCC's independent nature to the consideration of Chevron deference to the broadcast flag rulemaking? FCC's independence is provided for in three statutory schemes: the requirement of bipartisan appointment,238 the requirement that commissioners serve for fixed terms,239 and the "for cause" removal limitation.240 Thus, at least on the face of things, it appears that FCC is formally independent. On the other hand, it is undeniably true that the FCC is at least indirectly accountable to the electorate; after all, the President does control appointment of Commissioners and the Chairman, and the FCC's lawyer is the Department of Justice.241 One could argue that the President will be held accountable for his appointments to the FCC, and citizens will hold Congress accountable for the statutory delegations it makes to the FCC.242 The FCC, therefore, is formally dependent on the electorate to some extent. But the informal facts on the ground indicate that FCC is extremely independent at the moment. FCC has a "thin" relationship with both the executive branch and the Congress. The nationwide, sustained flap over FCC's media ownership rules unaccompanied by any change in FCC personnel seems to indicate that FCC is not feeling very accountable to the electorate.243 And insofar as capture is one indication of an absence of political accountability,244 in the case of the broadcast flag many have argued that the agency has been taken over by the entertainment industry.245 Accordingly, to the extent Chevron deference is based on the political accountability of the entity making the determination at issue, the particular facts of the FCC broadcast flag rulemaking seem to undermine the rationale for such deference. Given the FCC's independence and lack of current accountability, its lack of expertise in mandating design elements of consumer electronic devices, the absence of any clear (or unclear) delegation from Congress of the power to mandate encyrption technologies for consumer devices, and the convention that statutory rulemaking authority that does not include 238 statute citation 239 statute citation 240 statute citation. 241 cite Peter Strauss 242 cite Abner Greene article, verkuil 243 cite hearings about media ownership; Powell called on the carpet by Hollings. 244 http://www.cla .sc.edu/POLI/faculty /cgraham/gint_754_accountability_indep_ag.htm 245 quotes: best rulemaking money could buy; other commentary at the time of the November 2003 draft rules. The issue of capture is discussed in detail in Part V below. 6/28/2011 5:59 AM sanctions should be read as conveying the power to make internal, interpretative, housekeeping rules rather than generally-binding legislative rules, taken together with the rule's difficult tension/intersection with copyright law and the FCC's many past claims that it cannot make copyright policy, FCC's jurisdictional claim in the broadcast flag setting should be second-guessed by courts -- and not deferred to. All in all, it appears that none of the three traditional underpinnings of Chevron deference is persuasive in the broadcast flag context, and that the rulemaking's focus on copyright protection substantially undermines the case for politeness on the part of any reviewing court. Indeed, because Section 4(i) may authorize only interpretative rules, the flag rule may not be entitled to Chevron deference at all in the wake of Mead.246 Additionally, the flag rulemaking imposes design mandates on an enormous sector of the US economy -- consumer electronics and IT manufacturers -- which contributes much more to the overall monetary well-being of the nation than the content industry does. As Justice Breyer has said, "A court may also ask whether the legal question is an important one. Congress is more likely to have focused upon, and answered, major questions, while leaving interstitial matters to answer themselves in the course of the statute's daily administration".247 The question of whether to impose a closed-handshake encryption technical mandate on a huge and ever-growing industry is one that cannot be characterized as "interstitial." Any reviewing court should ask itself whether Congress meant to imply such a delegation through "ancillary" rulemaking jurisdiction. Arguably, Congress simply has not delegated legislative power to the agency in this area. Even under Skidmore deference, acute questions exist as to whether the FCC's broadcast flag rule should be deferred to. The thoroughness of FCC's decision is up in the air, because it leaves open an enormous hole: the analog outputs of digital devices, through which flagged material can be transmitted for redigitizing without the flag indication persisting.248 The consistency of this rule with prior interpretations by the FCC of its own statute is arguably questionable as well; in the past, the FCC has never imposed design mandates on manufacturers in the absence of an explicit statute giving it authority to do so. Finally, the degree of expertise FCC brings to the issue is certainly up for grabs, as it has been heavily reliant on 246 Merrill & Tongue at 474 (arguing that "the Supreme Court in its recent Christensen and Mead decisions has confined the scope of the Chevron doctrine to agency interpretations that have the force of law.") 247 Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L.Rev. 363, 370 (1986). 248 cite Andy Setos comment that no one believes the flag is a complete solution. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 63 the support it has gotten from the MPAA in creating and implementing this rule. E. IP-enabled services Chevron/Skidmore deference The IP-enabled services rulemaking presents a different set of Chevron concerns. Here, by contrast to the broadcast flag proceeding, the FCC has broad statutory language to point to. And it is quite confident that the internet, and all IP-enabled services, have something to do with "communications by wire and radio," and so therefore it has only to decide on the precise regulatory framework to be applied (judiciously) to these services. The FCC's proposal in this instance is reminiscent of the FDA's reading of its broad statutory language reviewed by the Supreme Court in FDA v. Brown & Williamson.288 i. Brown & Williamson background The Federal Food, Drug, and Cosmetic Act (FDCA) authorizes the FDA to regulate products as "drugs" or "devices" when they are "intended to affect the structure or any function of the body."289 The Act makes clear that some products may constitute a combination of a drug and a device.290 FDA may regulate drug/device combination products by using its authority to regulate drugs, its authority to regulate devices, or both.291 A provision of the FDCA allows FDA to "require that a device be restricted to sale, distribution, or use . . . upon such . . . conditions as [FDA] may prescribe in such regulation, if, because of its potentiality for harmful effect or the collateral measures necessary to its use, [FDA] determines that there cannot otherwise be reasonable assurance of its safety and effectiveness."292 In August 1996, FDA decided that tobacco products were combinations of "drugs" and "devices" and issued regulations focused on these products.293 FDA found that nicotine had an effect on the "structure and function" of the body that was "intended" by tobacco manufacturers.294 Thus, nicotine was a "drug" and cigarettes were drug delivery "devices" 288 529 U.S. 120, 120 S.Ct. 1291 (2000). 289 21 U.S.C. 321(g)(1)(C) and (h)(3). 290 21 U.S.C. 353(g)(1). 291 61 Fed. Reg. 44,400-44,403 (1996). 292 21 U.S.C. 360j(e)(1). 293 61 Fed. Reg. at 44,396; id. at 44,619 294 61 Fed. Reg. at 44,847-45,097; 61 Fed. Reg. at 45,203-45,204 6/28/2011 5:59 AM that, taken together, were "combination products" under the Act and subject to FDA rulemaking authority. In an effort to cut down on advertising methods that might attract minors to cigarettes, FDA issued regulations prohibiting placement of cigarette outdoor advertising near schools and blocking the distribution of promotional attire. But the FDCA requires the FDA to affirm that a product is "safe" before it can be allowed to be marketed -- and FDA had found in its rulemaking that tobacco products were "unsafe."295 Additionally, the FDA had consistently said prior to 1995 that it lacked jurisdiction over tobacco, Congress "had enacted several tobacco-specific statutes" that did not accord the FDA any regulatory authority,296 and Congress had "considered and rejected" measures that would have accorded the FDA such authority. FDA was promptly sued by tobacco companies and others who argued that FDA lacked statutory authority to regulate tobacco products that were marketed without therapeutic claims. The U.S. District Court for the Middle District of North Carolina held that FDA was correct to find that tobacco products are "devices" subject to regulation, and found that the absence of express statutory authority to regulate coupled with (i) FDA's earlier statements that it did not have authority to regulate and (ii) the enactment of tobacco-specific statutes by Congress did not affect the correctness of this finding.297 On appeal, the Fourth Circuit reversed, finding that FDA had authority to regulate products "only if they fall within one of the categories defined by Congress in the [FDA] Act."298 The court found that the FDA had relied too completely on the definitions found in the Act of "devices" and "drugs," and determined that this "limited, mechanistic inquiry" was "insufficient to determine Congress' intent."299 After citing Chevron, the Fourth Circuit examined whether Congress intended to delegate authority to FDA authority to regulate tobacco products -- rather than asking, as the district court had, whether Congress had intended to withhold this jurisdiction from the FDA.300 The court noted, "with emphasis," that a 295 Id. at 130. 296 Id. at 130-131. 297 Coyne Beahm, Inc. v. FDA, 966 F.Supp. 1374 (M.D.N.C.1997), rev'd sub nom, Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155 (4th Cir.1998), aff'd, 529 U.S. 120, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000); and its companion case, American Advertising Federation v. Kessler, 966 F.Supp. 1374 (M.D.N.C.1997), rev'd sub nom, Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155 (4th Cir.1998), aff'd, 529 U.S. 120, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000). 298 153 F.3d 155, 160. 299 Id. 300 Id. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 65 "precondition to deference under Chevron is a congressional delegation of administrative authority,"301 and stated that "ascertaining congressional intent is of particular importance where, as here, an agency is attempting to expand the scope of its jurisdiction."302 Reasoning that FDA's mission is to protect the public health by ensuring that drugs are "safe and effective," the Fourth Circuit found that it could not have been Congress' intent to have FDA regulate "dangerous" and "unsafe" tobacco products. Although FDA had found that withdrawal of tobacco from the market could harm addictive adults, and that it was safer to leave them on the market, the Fourth Circuit pointed out that the FDA could not provide proof of "any real health benefit from leaving tobacco products on the market."303 Because FDA was not carrying out its statutory task of balancing health benefits and risks -- because it had found that it would be impossible to make tobacco products reasonably safe -- the court found it could not have been granted the authority to regulate tobacco.304 The court supported this determination by recording FDA's statements over the years that "tobacco products were outside the scope of its jurisdiction,"305and by noting congressional inaction in this area -- including the introduction of 15 different bills giving FDA jurisdiction over tobacco products, none of which was enacted.306 The final nail in the coffin, from the Fourth Circuit's point of view, was that Congress had put in place tobacco-specific legislation (including cigarette labeling laws) that gave FDA no jurisdiction in this area.307 Noting that the case was about 301 Id., citing Adams Fruit Co. v. Barrett, 494 U.S. 638, 649 (1990). 302 Id., citing Adams Fruit at 650, quoting Federal Maritime Comm'n v. Seatrain Lines, Inc. (warning that "an agency may not bootstrap itself into an area in which it has no jurisdiction"); ACLU v. FCC, 823 F.2d 1554, 1567 n.32 (D.C. Cir. 1987) (stating that "[w]hen an agency's assertion of power into new arenas is under attack, therefore, courts should perform a close and searching analysis of congressional intent, remaining skeptical of the proposition that Congress did not speak to such a fundamental issue), cert denied, 485 U.S. 959; Hi-Craft Clothing Co. v. NLRB, 660 F.2d 910, 916 (3d Cir.1981) (noting that "[t]he more intense scrutiny that is appropriate when the agency interprets its own authority may be grounded in the unspoken premise that government agencies have a tendency to swell, not shrink, and are likely to have an expansive view of their mission"). 303 Id. at 163. 304 Id. 305 Id. at 168-170. 306 Id. at 170. 307 Id. at 171-173, noting that the FDA Act "charges the FDA with protecting the public health, but does not authorize the FDA to consider protection of commerce and the national economy" -- the policies involved in Congress' determination to enact cigarette labeling laws. 6/28/2011 5:59 AM "who has the power to make this type of major policy decision," the court concluded that FDA had exceeded the authority granted it by Congress.308 On review, the Supreme Court affirmed the Fourth Circuit's opinion. The Court's 5-4 majority decision, authored by Justice O'Connor, stated that although agencies are "generally entitled to deference in the interpretation of statutes that they administer," because Congress had precluded the FDA from asserting jurisdiction over tobacco products (as Congress in Section 230 has precluded the FCC from asserting rulemaking authority over the internet, and in the Copyright Act has precluded the FCC from making rules about copyright), FDA's assertion of jurisdiction of authority to regulate tobacco was impermissible.309 Additionally, the Court found it possible to find in Congress's silence a "clear intent" to prohibit FDA from regulating in this area. As for Chevron, the Court noted that its analysis had to begin with the question whether Congress had specifically addressed the issue the Court was confronting. Importantly, the Court noted that it was not limited to simply looking at the statute in question. Instead, the Court provided three guidelines for considering Step One: (1) the presence of ambiguity can be determined only by looking at the words of the statute in the context of the statute as a whole; (2) the meaning of the statute may be affected by other statutes; and (3) common sense should guide the Court in determining the manner in which Congress would be likely to "delegate a policy decision of .. . . economic and political magnitude" to a particular administrative agency.310 Using first of these three contextual elements as a guideline, the Court concluded that the FDCA as a whole would require that cigarettes and smokeless tobacco be banned from the market. But Congress has said that tobacco products may not be banned:311 The marketing of tobacco "constitutes one of the greatest basic industries of the United States with ramifying activities which directly affect interstate and foreign commerce at every point, and stable conditions therein are necessary to the general welfare."312 Therefore, FDA cannot regulate tobacco, because to regulate it would require its removal from the marketplace, and that FDA cannot do as a matter of law -- such authority cannot have been delegated to FDA. 308 Id. at 176. 309 Id. at 126. 310 Id. at 133. 311 Id. at 137. 312 Id. at 137, quoting 7 U.S.C. Sec. 1311(a). 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 67 As to the second guideline, concerning the effect of other statutes on the FDCA, the Court noted that Congress had enacted several cigarette- related statutes since 1965.313 A ban on tobacco would contradict Congress's clear intent as expressed in these statutes, the Court found.314 Moreover, the fact that Congress "had considered and rejected bills that would have given FDA such jurisdiction" effectively bolstered the FDA's many assertions over the years that it lacked jurisdiction to regulate tobacco products.315 Indeed, "[n]ot only did Congress reject the proposals to grant the FDA jurisdiction, but it explicitly pre-empted any other regulation of cigarette labeling [other than the "Caution: Cigarette Smoking May Be Hazardous to Your Health" warning]."316 Congress had "persistently acted to preclude a meaningful role for any administrative agency in making policy on the subject of tobacco and health."317 Thus, there was no possibility of allowing the FDA to interpret the FDCA to include jurisdiction over tobacco. Finally, taking on the third element, the Court stated that the nature of the question presented militated against a delegation to the FDA of power to regulate.318 The Court intimated that regulation over tobacco was such an important question that implicit authority to do so could not have been found by the agency in a Congressional ambiguity or gap.319 The Court used an FCC assertion of power as an example of the sort of question that could not have been delegated accidentally: In MCI Telecommunications Corp. v. American Telephone & Telegraph,320 the FCC had contended that, because the Communications Act of 1934 gave it the discretion to "modify any requirement" imposed under the statute, it therefore had the authority to render voluntary an otherwise mandatory requirement that long distance carriers file their rates.321 The Supreme 313 Id. at 137. 314 Id. at 143. 315 It. at 143. 316 Id. at 148. 317 Id. at 156. 318 Id. at 159. 319 Id. at 159-160: "Owing to its unique place in American history and society, tobacco has its own unique political history. Congress, for better or for worse, has created a distinct regulatory scheme for tobacco products, squarely rejected proposals to give the FDA jurisdiction over tobacco, and repeatedly acted to preclude any agency from exercising significant policymaking authority in the area. Given this history and the breadth of the authority that the FDA has asserted, we are obliged to defer not to the agency's expansive construction of the statute, but to Congress' consistent judgment to deny the FDA this power." 320 512 U.S. 218, 114 S.Ct. 2223, 129 L.Ed.2d 182 (1994). 321 FDA at 160, citing MCI at 225, 114 S.Ct. 2223. 6/28/2011 5:59 AM Court rejected this construction by the FCC, concluding that "[i]t is highly unlikely that Congress would leave the determination of whether an industry will be entirely, or even substantially, rate-regulated to agency discretion--and even more unlikely that it would achieve that through such a subtle device as permission to 'modify' rate-filing requirements."322 For important questions, or questions with substantial economic impact, the Brown & Williamson Court suggested that deference under Chevron was not appropriate.323 The Court avoided creating a categorical exception to Chevron, however, by finding that "based on the overall regulatory scheme and the subsequent tobacco legislation, [ ] Congress has directly spoken to the question at issue and precluded the FDA from regulating tobacco"324 -- in other words, at Chevron "step one" Congressional intent was clear. Thus, even in an area in which further regulation might have helped save the lives of millions of Americans, the Court stood firm and refused to defer to an agency's construction of its statute to include regulation of a particular industry's product -- essentially because this regulation (i) appeared to address an important domain -- regulation of a great "basic industry" -- for which authority could not have been delegated accidentally, (ii) concerned a question (marketing of cigarettes) about which Congress had already enacted several statutes, and (iii) conflicted with Congressional refusals to grant jurisdiction to the agency.. ii. Comparing FDA to FCC The FCC IP-enabled services setting is strikingly parallel to the FDA tobacco setting. From the telephone industry's point of view, a national crisis has erupted over the last few years, as online communications become a common pastime for millions of people. Once people start preferring online data packet communications to traditional circuit- switched communications, the entire justification for the telephone industry's business becomes suspect. Jobs will be lost. This is a systemic problem, like tobacco addiction. Already powerful consumer protection 322 FDA at 160, citing MCI at 231, 114 S.Ct. 2223. 323 Id. at 160: "Deference under Chevron to an agency's construction of a statute that it administers is premised on the theory that a statute's ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps. . . . In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation." 324 FDA at 160. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 69 laws address online services, but they by themselves will not protect the telephone industry from destruction. From the telecom industry's point of view, unless these services are placed on a more or less "level playing field" with their own heavily regulated services, it is likely that telephones will have trouble surviving. Moreover, law enforcement claims that online services are places of terrorist activities, and that "The finer nuances advocated by some filing comments with the Commission between circuit- switched and packet-mode telephony will be lost on the surviving family members of the victims should a terrorist attack occur in the breach between the issuance of an order and its delayed implementation because of either non-coverage or non-compliance with CALEA."353 Given its history as a traditional regulator of traditional telephone service (and given that the Department of Justice is its lawyer), the FCC is sympathetic to these problems. It worries about support for universal services disappearing. It worries about terrorism. It is petitioned by Vonage and SBC to create rules regulating IP-enabled services -- to protect against the actions of many state agencies -- just as the FDA was petitioned to regulate tobacco products. It looks to its Act for jurisdiction over IP- enabled services. Like the FDA, the FCC finds broad ancillary jurisdiction in the definitions set forth in its general statute; where the FDA found the ability to regulate "drugs" and "devices," and fit cigarettes (reasonably) into these definitions, the FCC finds broad Title I authority in the definitions of "radio communications" and "wire communications," and fits the internet (reasonably) into these definitions. It also points to a broad rulemaking authority that it believes it has under Title I.354 Like the FDA assertion of jurisdiction over tobacco products, FCC's attempt to regulate IP-enabled services is arguably beyond its scope, even though such services fit within the definitional breadth of its enabling Act. Anything online will fit within the Act. Online banking, online newspapers, community web servers, every humble blog page -- all of these are IP-enabled services that involve radio or wire communications. Collectively, IP-enabled services represent a huge and basic industry that is absolutely central to the US economy -- even more so than the tobacco industry. As in the FDA case, the regulation of these services is not something that Congress has explicitly given the FCC the power to do. 353 In the Matter of United States Department of Justice, Federal Bureau of Investigation and Drug Enforcement Administration Joint Petition for Rulemaking to Resolve Various Outstanding Issues Concerning the Implementation of the Communications Assistance for Law Enforcement Act, RM No. 10865, Joint Reply Comments of The United States Department of Justice, Federal Bureau of Investigation, and Drug Enforcement Administration, at 22. 354 47 U.S.C. Sec. 154(i) (2000). 6/28/2011 5:59 AM Indeed, Congress has done precisely the opposite in Section 230, proclaiming that it is Congress's policy to leave these services unfettered by national or state regulation. At the least, regulation of these services (for "social policy" reasons or any other reason) is an "important" question that would not have been given by Congress to the FCC by implication. As in the FDA situation, the FCC is relying completely (and mechanistically) on the definitions found in its enabling Act, but FCC's close reading of its statute is likely ineffective to determine Congressional intent. The key question is whether Congress intended to delegate authority to FCC to regulate IP-enabled services, rather than, as the FCC puts the inquiry, whether Congress had intended to withhold this jurisdiction from the FCC.355 Although not dispositive, the history of congressional inaction in this area supports the argument that FCC is acting beyond the scope of its powers: several major bills have been introduced or floated that would have given FCC the power to enact these IP-enabled services rules, but none has passed.356 iii. Rationales for deference Which of the principles underlying Chevron and/or Skidmore deference are most persuasive in the IP-enabled services setting? i. Delegation. FCC concedes that Congress has not made explicit its authority to impose "social policy" rules on some or all IP-enabled services. Again, as in the broadcast flag context, FCC's key argument is that its jurisdiction is "ancillary" to the broad authority implied by Congress's creation of the FCC to regulate wire and radio communications. It states: "Congress [ ] has stated public policy goals that would presumably continue to apply as 355 When Peter Barton Hutt was chief counsel of the FDA in the 1970s, he successfully pushed for a broad reading of the FDCA's rulemaking power. "In a paper presented to the Food and Drug Law Institute in 1972, Hutt expounded the theory that the FDCA should be viewed as a 'constitution' that gave the FDA broad authority to implement 'a set of fundamental objectives.' Specifically, he argued that the Act gave the FDA power to do anything not excepted or withheld by the Act, and he cited the general rulemaking clause in section 701(a) to support his conclusion that the Act 'provide[d] ample legal authority' for the FDA to adopt procedures for the enforcement of FDCA requirements." Merrill and Tongue, at 558 (footnotes omitted). It may be that the FCC finds the FCc example instructive; the FCC, like the FDA in the 1970s, feels the need to be entrepreneurial. 356 cite bills. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 71 communications networks evolve. For example, it has stated that universal service should be maintained, that telecommunications equipment and services should remain usable by people with disabilities, that prompt emergency service should be available to the public through the 911 system, and that communications should be accessible to law enforcement officers acting on the basis of a lawfully obtained warrant. The Commission is empowered by statute to weigh these various objectives and craft regulations that specifically target the relevant features of VoIP and other IP-enabled services. Where the Act does not prescribe a particular regulatory treatment, the Commission may have authority to impose requirements under Title I of the Act."357 In other words, because telecommunications services are required to comply with this list of social policies, and Congress has not said that FCC may not regulate IP-enabled services, Congress impliedly has acceded to any actions FCC deems appropriate in this connection. This argument seems to fall short of sustaining the "delegation" rationale for Chevron deference, because it depends in important part on Congressional inaction rather than action. As in the broadcast flag setting, FCC is clearly not arguing that any ambiguity in the Communications Act indicates that it has been granted rulemaking authority by Congress. To the contrary: FCC is pointing towards specific definitions contained in the Act -- wire and radio communications -- and claiming that they support its exercise of ancillary jurisdiction because direct statutory jurisdiction is absent. ii. Chevron and Skidmore Agency Expertise. FCC has not expressed an opinion as to its expertise in the IP-enabled services area, but the NPRM's lighthearted footnote about tariffing online newspapers and requiring E911 services of online retailers358 signals that the Commission is confident that it has the expertise required. It appears to believe that although the internet works differently than the traditional circuit-switched network, it is nonetheless a "communications network" 359 that as it matures should be subject to the same rules as any other communications network. This position is supported by key industry players. For example, Tony Rutkowski, [title] for VeriSign, has said as much publicly: [quote from blog]. FCC would argue strongly that it has relevant expertise in the IP-enabled services arena -- and this argument would be more persuasive than it was in the broadcast flag context. 357 NPRM at 31. 358 n. 155. 359 NPRM at 31. 6/28/2011 5:59 AM iii. Political Accountability. There is a peculiar connection between the FCC's independence and the IP-enabled servvces rulemaking that deserves unpacking. As stated above, the Department of Justice is the FCC's lawyer.360 In the BrandX case, the FCC must have been anxious to have the Supreme Court review the 9th Circuit's refusal to accord deference to the FCC's tentative finding that cable modem service was an information service (and thus not facially subject to CALEA obligations). But the Department of Justice has not, as of the time of the drafting of this article, sought a writ of certiorari from the Supreme Court from the BrandX decision. It may very well be that the DOJ is making some sort of arrangement with FCC that will ensure that some subset of IP-enabled services -- perhaps services that interconnect with the traditional telephone netowrk or use North American Numbering Plan numbers -- be subject to CALEA pre-approval by the FBI. In exchange, the DOJ might be willing to appeal the BrandX case. This is sheer conjecture on my part, but it seems to be supported by the events of the last few months. The FCC has indeed initiated a CALEA rulemaking proceeding with respect to a subset of IP-enabled services, as the Department of Justice requested, even though several Senators expressed acute doubt that such affordances were necessary or even logical from the FBI's perspective, and even though no evidence has been presented that there is a problem with online services' cooperation with law enforcement implementation of lawfully obtained search warrants. FCC is clearly "reporting to" the Executive Branch (via law enforcement) in a way that supports its political accountability in the Chevron sense. But it is not clear that the Congress would approve of FCC's actions in this area. At the least, the accountability of the FCC in the IP-enabled services area is mixed. Given the FCC's awkward situation with the Department of Justice, the absence of any clear delegation from Congress of the power to make "social policies" for IP-enabled services, and the crucial importance of the online economy to the future of the United States, FCC's jurisdictional claim in the IP-enabled services setting should be second-guessed by courts -- and not deferred to under either Chevron or Skidmore.361 360 cite. 361 Merrill Chi-Kent at 1092: "Under Chevron, the courts see the process of review as more like a game of "gotcha." If the court can find the right scrap of text or dictionary definitions or the right structural inference to be drawn from the text, then the agency loses; otherwise it wins. Either way, the consequences for policy are ignored." 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 73 V. The Question of Capture Why did the FCC believe that it should exert its jurisdiction in areas in which, by its own admission, Congress had not explicitly granted it power to regulate? The answer to this question may be found in a revived understanding of agency capture. Independent agencies like the FCC have significant governmental power.362 That power is -- at least to some extent -- protected from substantial political challenge.363 Thus, how that power is used, and for whose advantage, becomes a question of great moments. Until the 1950s, most people assumed that administrators worked in the interest of the general public.364 From the mid-1950s until the end of the 1960s (and perhaps beyond) many came to believe that groups of administrators were subject to enormous pressure from the entities that are regulated by those administrators.365 Thus, "a key instrumentality of activist government - the administrative agency - came to be regarded as suffering from pathologies not shared by other governmental institutions such a legislatures or courts. The principal pathology emphasized during these years was 'capture,' meaning that agencies were regarded as being uniquely susceptible to domination by the industry they were charged with regulating."366 362 need cite. 363 need cite. 364 "[I]in the first two decades after the adoption of the APA the dominant assumption was that all institutions, including administrative agencies, generally act to promote the public interest." Thomas Merrill, Capture Theory and the Courts: 1967-1983, at 1047. See also Mark C. Niles, ON THE HIJACKING OF AGENCIES (AND AIRPLANES): THE FEDERAL AVIATION ADMINISTRATION, "AGENCY CAPTURE," AND AIRLINE SECURITY, 10 Am. U.J. Gender Soc. Pol'y & L. 381, 387 (2002) citing Richard Stewart, The Reformation of American Administrative Law, 88 Harv. L. Rev. 1669, 1682 (1975). 365 Id. at 388. According to Matthew Zinn, Professor Marver Bernstein appears to have been the first to use the term capture. Matthew Zinn, POLICING ENVIRONMENTAL REGULATORY ENFORCEMENT: COOPERATION, CAPTURE, AND CITIZEN SUITS, 21 Stan. Envtl. L.J. 81, 107 n.90 (2002), citing Marver H. Bernstein, Regulating Business by Independent Commission 90 (1955). See also Matthew L. Spitzer, Antitrust Federalism and Rational Choice Political Economy: A Critique of Capture Theory, 61 S. Cal. L. Rev. 1293, 1302- 18 (1988); John Shepard Wiley Jr., A Capture Theory of Antitrust Federalism, 99 Harv. L. Rev. 713, 723-25 (1986). 366 Thomas Merrill, Capture Theory and the Courts: 1967-1983, 72 Chi.-Kent L. Rev. 1039, 1043 (1997). 6/28/2011 5:59 AM Of course, expert independent agencies should be subject to some industry influence. Only then can their expertise be tested and improved -- absent any industry influence, the agency will be working in a vacuum. On the other hand, the "capture" theory developed to suggest undue influence that directs the agency to stop paying attention to the public interest. "Capture," in common speech, means that the agency is substantially controlled by the industry it regulates.367 "Capture is typically used to describe a regulatory agency's collusion with the firms it is ostensibly regulating, to the detriment of the public interest."368 When captured, so the theory went, an agency would be less enthusiastic about enforcing the rules it has created, or even unwilling to create rules in the first place that may impose costs on the industry by which the agency has been captured.369 Capture was believed to happen when well-funded industry groups focused their attention on "their" regulatory agency -- and that agency had a certain amount of discretion in deciding what to do.370 As Thomas Merrill says, capture was believed to take place when "compact groups whose members have high per capita stakes in a controversy out-organize and out- influence larger more diffuse groups, resulting in a pervasive 'majoritarian bias' on the part of decisionmakers."371 These "compact groups" will understand the rules involved in working with a particular regulator better than anyone else, will be able to turn on a dime in order to meet public comment period demands, and will know who to influence inside the regulating agency. People inside the agency need information and resources from the regulated industry in order to do their jobs, and may be looking for future private sector employment. For their part, members of the regulated industry want to ensure that the rules imposed on them are not 367 "It has become widely accepted, not only by public interest lawyers, but by academic critics, legislators, judges, and even by some agency members, that the cooperative overrepresentation of regulated or client interests in the process of agency decision results in a persistent policy bias in favor if these interests. Indeed, agency capture is increasingly viewed less as an exception and more as a common consequence of our federal administrative structure." Stewart, supra note __, at 1713. 368 Zinn, supra note __, at 107. 369 For a summary of capture theory scholarship, see Zinn at 107-111. 370 In Chevron, the Court based its decision on a gap in a broad guiding statute -- in that case, the Clean Air Act -- and found that federal courts should defer to an agency's construction of such a statute where Congress has implicitly delegated policy-making authority to an agency. The kind of discretion granted in the CAA provides the optimal conditions for capture. 371 Merrill, supra note __, at 1053 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 75 onerous. Hence, capture.372 Concern about particular "pathologies" of capture to which administrative agencies were subject led to Congressional attempts in the 1970s to cabin administrative discretion by passing more detailed statutes.373 And the courts became more active in second-guessing administrative actions in the 1970s and early 1980s, up until the Chevron decision.374 Since the early 1980s, capture theory has been sharply criticized and is widely viewed as quaint.375 Capture theory has also been tagged as descriptively irrelevant. As David Spence and Frank Cross have said, "While it remains true that industry enjoys enormous resource advantages over others in the struggle to influence policymaking in Congress and at the agency level, those resource advantages have simply not led to the outlier- dominated policy processes capture models describe."376 Public choice theory, which looks at administrative and other governmental decisions as a "product of interest group pressure brought to bear on bureaucrats seeking rewards such as job security, enhanced authority, or the favor of powerful legislators upon whom the agency depends,"377 may now with its general cynicism about all governmental efforts have subsumed capture theory and 372 "Eventually, the agency is persuaded to adopt the policy preferences of the regulated industry, based in part upon the skewed information set with which the agency is presented." Spence and Cross, at 105 .n37. 373 Merrill, supra note __, at 1052. See also Richard B. Stewart, The Reformation of American Administrative Law, 88 Harv. L. Rev. 1667, 1681-88 (1975). 374 need cite. Also Merrill at 1052. 375 See, e.g., David B. Spence, 89 Cal. L.Rev. 917, 961 ("notion of agency capture, which is drawn almost entirely from academic theory and anecdote, has lost influence in recent years"); "[A]gency capture is no longer regarded as a valid descriptive theory of bureaucratic behavior." Spence and Cross, at 122, footnote omitted. Lars Noah, Rewarding Regulatory Compliance: The Pursuit of Symmetry in Products Liability, 88 Geo. L.J. 2147, 2154 (2000) (citing sources supporting assertion that capture thesis is "supported by little more than anecdote and suspicion.") 376 Spence; see also Jonathan R. Macey, Transaction Costs and the Normative Elements of the Public Choice Model: An Application to Constitutional Theory, 74 VA. L. REV. 471, 513 (1988) (declaring that "interest group capture of administrative agencies ... is unusual") 377 Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 561 (2000). Public choice theory may also be understood, more generally, as "scholarship that analyzes political/legal problems using the tools of economic analysis." David B. Spence and Frank Cross, A Public Choice Case for the Administrative State, 89 Geo. L.J. 97, n.4 (2000) 6/28/2011 5:59 AM made it academically irrelevant.378 "Capture" may no longer be a recognizable, stand-alone category of agency theory, but its narrative power is still compelling and may be worth reviving. Who is harmed by capture?379 The traditional capture theory answer has been that the powerful industry segment that is regulated by the agency is benefited by capture and the general public is harmed.380 But both the broadcast flag and IP-enabled services disputes suggest that this answer is too simple for the 21st century. I suggest that "capture" theory needs to be revived, at least for the special purpose of assisting understanding of these two case studies. Powerful industry segments or interest groups -- either those regulated by the agency, or those with which the agency would like to have a closer relationship, for whatever reason -- may capture an agency in order to ensure that a second industry segment or interest group not within the traditional ambit of the agency is competitively harmed through the creation of new rules. Instead of capture leading to under-regulation, this kind of capture prompts over-regulation of a group about which the agency has very little institutional knowledge. And all of this can be accomplished in the name of the public's interest. Where former capture theory starts with broad discretion given the agency to enforce its statute (which discretion is then exercised in favor of the regulated industry in the form of under-enforcement), this kind of capture has the agency declaring that it has discretion to make new rules about a foreign line of business. This kind of capture is anything but new. Indeed, the sordid history of the ICC's efforts to protect the railroads by regulating motor carriers has 378 need cite See generally David A. Skeel, Jr., Public Choice and the Future of Public-Choice-Influenced Legal Scholarship, 50 Vand. L. Rev. 647, 659-660 (1997) (reviewing Maxwell L. Stearns, Public Choice and Public Law: Readings and Commentary (1997)) (noting that "[i]t was not until the mid-1970s that legal scholars first explored the implication of public choice" but since then "public choice has taken the legal literature by storm."). 379 need cite. See John C. Coates IV, Private vs. Political Choice of Securities Regulation: A Political Cost/Benefit Analysis, 41 Va. J. Int'l L. 531, 582 n.150 (2001) (arguing that the removal of regulatory authority over securities from the Federal Trade Commission and the placement of that authority with the SEC facilitated capture by the industry by narrowing the scope of the agency's interest and making its "regulatory clientele more homogenous.") (quoting Jonathan R. Macey, Administrative Agency Obsolescence and Interest Group Formulation: A Case Study of the SEC at Sixty, 15 Cardozo L. Rev. 909, 925 (1994)). 380 Capture is traditionally understood to lead to under-regulation. Zinn cites several examples of statutory checks that were adopted by Congresses that were convinced by capture scholarship and advocacy that agencies had ceased to effectively enforce their statutory mandates. Zinn, 112-113. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 77 been extensively documented.381 The railroads' problem in 1935 was not too little competition among railroads (the factor that had caused regulation of the railroads in the first place), but too much competition between railroads and motor carriers. The solution the ICC came up with was to extend the then-existing system of railroad regulation to motor carriers. More regulation rather than less was applied to a different industry, so as to avoid a free-for-all competitive market.382 The ICC finally was put out of business on January 1, 1996.383 We need a 21st century instantiation of Nader's Raiders to publicize this problem,384 and a new era of judicial activism to take it on. Forty years ago, new "capture" theories gave rise to judicial activism directed towards cabining the discretion of captured agencies during the years between 1967 and 1983.385 In light of the revived form of "capture" now on the scene, a tilt back to pre-Chevron era judicial activism may be called for. Indeed, Mead and Brown & Williamson have already signalled that we are in a new era of administrative law.386 As in the 1967-1983 period, courts need to 381 Huntington, The Marasmus of the ICC: The Commission, the Railroads, and the Public Interest, 61 YALE L.J. 467 (1952); cf. Louis L. Jaffe, The Effective Limits of the Administrative Process: A Reevaluation, 67 Harv. L. Rev. 1105, 1108-1109 (1954) ("The criticisms of the ICC are tendentiously documented and ultimately evasive".) 382 Jaffe quotes the then-Commissioner of Transportation who proposed to regulate motor carriers in 1935: "There are some who think that the thing to do is to let down the bars and allow the competitors to fight it out to the finish .... The eventual result might be a kind of coordinated system of transportation, achieved through survival of the fittest, but the greater competitive strength of the railroads would be likely to distort the results. The fact is that this plan of free-for-all competition has never worked successfully, either here or elsewhere. It has been tried and found wanting." Jaffe at 1114. 383 Joseph D. Kearney, Will the FCC Go the Way of the ICC?, 71 U. Colo. L. Rev. 1153, 1156 (2000) (citing statute). 384 Merrill at 1061: "[V]arious strands of academic capture theory roiled together into a general pot of discontent, out of which emerged a new popular muckraking literature. The principal purveyors of this populist strain of capture theory were the so-called "Nader Raiders," who produced a string of monographs and associated publicity in the late 1960s and early 1970s castigating various agencies for cozying up to big business and ignoring the public interest." 385 Thomas W. Merrill, Capture Theory and the Courts: 1967-1983, 72 Chi-Kent L. Rev. 1039 (1997). 386 One could use the Merrill historical analysis to propose that we are entering a fourth era: (1) 1946-1966, courts and scholars believe agencies work in the public interest; (2) 1967-1983, disenchantment with agency performance, capture theory, judicial activism; (3) 1983-2004, public choice theory, judicial deference; (4) 2004, return to new form of capture theory, judicial activism. Merrill suggests 6/28/2011 5:59 AM selfconsciously re-assert their role in providing a constructive corrective to agency capture. A. Capturing the Flag The flag rulemaking was driven by the MPAA. Two years before the rulemaking began, MPAA had begun working with a a consortium of companies who had developed security technologies (the "5C" companies). MPAA then teamed with the 5C companies to suggest to the FCC that a rulemaking was necessary. More details. In response to an open-ended NPRM, MPAA and the 5C companies proposed a detailed rule. MPAA met XY times with the Bureau and dealt with all last-minute questions. The resulting rule very closely resembles what was proposed by MPAA and the 5C companies.387 MPAA has been deeply involved with the interim process created to deal with proposed content protection technologies.388 Why does this seem like "capture"? Capture usually involves regulation that provides advantages to the regulated private entities, in the form of less regulation, at the expense of the general public interest. Here, the broadcast flag was designed to protect the studios -- the broadcasters had very little to say about it -- and the studios are unquestionably private entities. But the studios are not traditionally regulated by the FCC. Indeed, they have successfully resisted rulemaking by the FCC that would affect them.389 The studios were likely introduced to the FCC by the broadcasters, who were certainly well-known to the Commission, and are themselves in turn controlled by or at least beholden to the studios. Additionally, the studios have enormous influence over the Commerce Committee within the Senate -- the committee responsible for setting the FCC's budget every year -- and were claiming that the digital transition would be slowed down unless the flag rule was put in place. Thus, the MPAA had easy access to a particular part of the FCC: the Media Bureau.390 According to the FCC, the Media Bureau "develops, that legal academics have no particular expertise at predicting the future of administrative law because they are always behind the times -- reading opinions long after the fact, rather than being part of the rulemaking process in the first place. With this Article, I am proposing that netizen legal academics need to become administrative academics and affect ongoing rulemakings. 387 need support. 388 cite to diFrancesca footnote. 389 MPAA v. FCC case re closed-captioning. 390 The Media Bureau was created in 2002. It combined the functions of the earlier Mass Media Bureau with those of the Cable Bureau. Fritz Messere, Analysis of 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 79 recommends and administers the policy and licensing programs relating to electronic media, including cable television, broadcast television and radio in the United States and its territories."391 This has meant, practically, that the Media Bureau oversees licensing and regulation of broadcasting services and enforcement of the Cable Act of 1992. They argued that the flag rulemaking was necessary to protect broadcast television. The Media Bureau viewed part of its mandate to include protecting brroadcast. After all, if broadcast television ceased to be important or relevant, that would remove much of the reason for the media bureau itself to exist. Look at Defining Vision to see if that can help here. Professor John Duffy has located studies that suggest that "the FCC has been beholden to the politically powerful, and that its policies protected the interests of local broadcasters while entrenching the three major networks."392 The broadcast industry had successfully used the Commission to limit the reach of the cable television industry when it saw cable competing with it -- indeed, that is the genesis of the first "ancillary jurisdiction" case, Southwestern Cable. There must be articles about this cable battle. The broadcast industry, and their masters the studios, saw another threat on the horizon that was much more troubling than cable had been thirty-five years before: the internet. Here was a new technology that, much like cable, destroyed any proximity control that would protect the broadcasters' markets. Give arguments from TiVo MPAA white paper. The content industry was finding litigation against the affordances of the internet expensive and painful. RIAA individual cases; Grokster. Rather than go after the network of networks itself, the MPAA decided to after the machines that connect to the internet, and their manufacturers. In a sense, the MPAA saw all devices that might transmit their content online as infringement machines that would have to be constrained. And the Media Bureau was interested in helping. They probably saw a way of keeping their Congressional funders happy. They probably thought that there would be a way to keep broadcast alive, and that part of their mission was to promote broadcast.393 It is hard to say conclusively that any one industry sector has "captured" part of an agency, but the the Federal Communications Commission, online at http://www.oswego.edu/~messere/FCC1.html. 391 http://www.fcc.gov/cgb/consumerfacts/aboutfcc.html. 392 John F. Duffy, THE FCC AND THE PATENT SYSTEM: PROGRESSIVE IDEALS, JACKSONIAN REALISM, AND THE TECHNOLOGY OF REGULATION, 71 U. Colo. L. Rev. 1071, 1121 (2000) 393 Just as the FAA wants to support airplane industry and is divided for that reason. cites. 6/28/2011 5:59 AM MPAA example seems as persuasive as any other.394 Many of the traditional "capture" examples that have been studied by scholars resulted in less regulation for the regulated industry. Here, the regulated industry, the broadcasters (more accurately, the friend of the regulated industry, as in the case of the MPAA) wanted more regulation -- of someone else.395 FCC was captured by the studios when the studios threatned to withhold content and slow the transition. This plus corporate alliances between content companies and broadcasters provided the framework that made capture possible. The broadcasters had captured the agency already, but the content companies captured the networks. So they had the FCC create an elaborate handshake-series of rules that required each machine touching broadcast content to be constrained from allowing that content onto the public internet. This will have the effect of shifting enormous costs onto the manufacturing industry, making all innovation by this important sector of the US economy subject to the studios' rules. B. Capturing IP-enabled services The IP-enabled services story is slightly different from the flag 394 See, e.g., Lawrence W. Kessler, THE UNCHANGING FACE OF LEGAL MALPRACTICE: HOW THE 'CAPTURED' REGULATORS OF THE BAR PROTECT ATTORNEYS, 86 Marq. L. Rev. 457 (2002) (asserting that lawyers who regulate the bar have had their neutrality undermined by over-identification with the legal profession). David Spence points out that some have argued that the Interstate Commerce Commission "did less to regulate railroads in its early years than to coordinate the industry's anticompetitive activities." David B. Spence, THE SHADOW OF THE RATIONAL POLLUTER: RETHINKING THE ROLE OF RATIONAL ACTOR MODELS IN ENVIRONMENTAL LAW, 89 Cal. L. Rev. 917, 927 (2001)(citing Gabriel Kolko, Railroads and Regulation, 1877-1916 (1966), and Stephen Skowronek, Building a New American State: The Expansion of American Administrative Capacities, 1877-1920 121-50 (1982)). use FAA article examples about guns, meat, airplanes, nuclear plants. 395 Washington Post: "FAA Chief David R. Hinson's response to questions about the FAA's safety oversight is too glib: 'When we say an airline is safe to fly, it is safe to fly. There is no gray area.' What kind of area is it that has prompted the National Transportation Safety Board to raise questions over the years about the FAA's response to pressures from airlines? For example, when the board recommended that better smoke detection devices and extinguisher systems be mandatory in certain cargo compartments, what was the response? Too costly. Too costly for what? For devices that might save lives? Or too costly for some airlines to support? Along these lines, why is one official charter function of the FAA to promote air travel? The FAA Should Inspect Itself, Wash. Post, May 23, 1996, at A20. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 81 context, in that the telephone companies seeking the rulemaking are already themselves clearly subject to the agency's power. (By contrast, in the broadcast flag setting, the studios are not already regulated entities, and have had to use the broadcasters as their proxies.) But the IP-enabled services story is similarly one of capture. There has not been an outcry for rules governing online services. Indeed, the Media Bureau has made clear from time to time that it does not now regulate the internet nor seek to.396 But the intersection between traditional telephone service and new services like Skype and Vonage has been too dramatic for the Commission to ignore: it must act to protect incumbent telephone providers and protect its own standing in the world. As FCC made clear in its 1999 Strategic Plan, the agency must change in order to continue to exist.397 Readers of mass-media articles understood that the FCC's decision not to treat Pulver.com as a Title II tariffed service was a tremendous victory for the online world.398 The language of the declaratory order ("unregulated") created the strong impression that FCC was going to leave online services unconnected to the traditional telephone network alone. But this is a misunderstanding of the FCC's approach to "information services." Instead, the FCC is considering applying several categories of "social policies" to online services, and the traditional telephone companies see no reason that this shouldn't be done.399 The FCC's need for continued relevance in the internet age, combined with the telcos' railroad-like desire for a level playing field and intense pressure from the law enforcement community, has led to a capture scenario; in a sense, the FCC is being captured by its belief in its own destiny, and will be able to please the industry it traditionally regulates by creating rules for the online world. This is very similar to the ICC capture scenario. At the very least, it should be second-guessed by courts. Conclusion The genius of the judicial role is not just that courts are part of a non- political branch of government, but also that they do not have bureaucratic 396 need sources. 397 note several calls for destruction of the agency; kearney article, huber article, others. 398 cite articles (many). 399 cite qwest, SBC, verizon, others. 6/28/2011 5:59 AM reasons to agree to (or not agree to) particular political assertions of agency jurisdiction. Courts as bureaucracies have vastly different characteristics than agencies. Not only are courts part of the formally non-political branch of our government, but they are also unlikely to need to fight for their existence.400 By contrast, the FCC has had to assert its relevance many times over the years.401 An agency, unlike a court, is very readily captured by industries that help the agency continue to survive and grow. Indeed, the agency/regulated entity relationship is a very thick one, full of quid pro quos and self-fulfilling prophecies. Industry capture of administrative agencies is a well-recognized phenomenon. Except in the narrow (and vanishing) category of structural injunction cases, courts by and large do not have the repeat engagements with particular categories of entities that an agency does, and it is difficult to assert that a particular court is in thrall to an industry. Of course, a court could be in thrall to a local business, and localism remains a judicial issue -- particularly at the state court level. But industry capture of nationwide courts would be very difficult indeed.402 Even if courts are no wiser than agencies, or necessarily more consistent in their rulings, courts are not subject to the quasi-biological imperatives of bureaucracies to hang on to staff, facilities, and territory. Agencies, on the other hand, are bureaucracies that seek to expand their budgets. An administrative agency faced with the political question of jurisdiction, and worried about its own demise, may feel the imperative to protect its own turf. The case studies presented in this Article suggest that the affordances of the internet have caused the FCC and the industries it regulates to worry about their collective futures. This set of worries may be leading the FCC to stretch its jurisdiction beyond its recognizable limits. The courts should review FCC's jurisdictional claims carefully, and should keep in mind that agencies' temptation to overreach caused by disruptive change militates in favor of de novo judicial review rather than automatic deference (under either Chevron or Skidmore). The risk of unaccountable action by an agency is unacceptably great. In the broadcast flag setting, for example, the Mass Media Bureau of the FCC took on the regulation of consumer electronics devices because of their felt need to protect the quality of digital television programming, and the economic success of broadcasters (rather than the success of a national 400 compare peter strauss article. 401 note 1970s/80s calls for a single administrative head; media concentration flap. 402 the content industry is certainly trying this with appellate courts: napster, aimster. Grokster still up for grabs. Clear from argument that congress should decide scope of contributory liability. 17E1309A-B129-4C43-B83B-91693074BAD7.DOC 6/28/2011 5:59 AM 2004] NICE WORK IF YOU CAN GET IT 83 system of broadcasting). One could suggest that this was done in order to protect the existence of the Bureau itself. At any rate, given that the FCC appears to be annexing substantially new territitory in the rule, judicial review of this potential bureaucratic overreaching is appropriate. Similarly, in the IP-enabled services context it is very likely that FCC will seek to impose "social policy" Title I regulation on some defined category of IP-enabled services, given its mandate to protect the telephone system and its felt need to protect its own future. Again, this is substantially new territory for the Commission (despite its claims to the contrary). The courts should look hard at any assertion of jurisdiction in this area. Because the risk of unaccountable, path-dependency-creating action by an agency is much greater than the risk of judicial intrusion into an area of agency expertise, de novo judicial review of these jurisdictional questions is appropriate. It is much harder to ratchet back an unaccountable agency than to reverse an erring court. The internet of the future will thank us.