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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
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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.."
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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).
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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]."
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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
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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
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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.
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      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).
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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).
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     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
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     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.
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     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.
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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
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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
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        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.
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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,
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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.
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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
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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
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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.
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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.
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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.
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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).
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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),
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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
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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) .
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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
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        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
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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.
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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.
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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.
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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.
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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.
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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).
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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.
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"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.")
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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[10]
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
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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."
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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
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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.
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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.
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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.
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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).
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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.
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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.
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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).
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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.
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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.
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        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."
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                                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).
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     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
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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)
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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.
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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
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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
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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.
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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.
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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.
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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.

				
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