The Jeff Pulver Blog: “Rainy Days and Mondays Get Me Down” -- 3 Blows to the Internet – Losing Grokster, Brand X, and Pepper

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June 27, 2005

“Rainy Days and Mondays Get Me Down” -- 3 Blows to the Internet – Losing Grokster, Brand X, and Pepper – When it Rains, it Pours

(My First Take on the Implications of the Supreme Court's Brand X Opinion)

We haven’t had a chance to parse through the more subtle ramifications of the Supreme Court’s Opinion in Brand X. The basic ruling, authored by Justice Thomas, is pretty straight-forward: by a 6-3 vote, the Court upheld the decision of the FCC that broadband cable modem services are exempt from mandatory common carrier regulation. Thus, cable operators offering high-speed Internet access have no legal duty to open their service to end users seeking access to unaffiliated Internet service providers. The Opinion was based on the Court’s grant of “Chevron Deference” to the FCC, which stands for the proposition that ambiguities in statutes are delegations of authority to the agency to fill the statutory gap in reasonable fashion. (Conceivably, the Court would have upheld a contrary ruling by the FCC, as long as the Commission’s conclusion reflected the FCC’s effort “to fill the statutory gap in reasonable fashion.” (But that is a result in some distant, parallel universe, not the one in which we find ourselves today. Perhaps, that parallel universe will be better positioned, through a robust, competitive Internet and ASP market, to develop the Internet applications necessary to reach out to us.)

Back to reality.

The Supreme Court found that the FCC’s construction of the definition of “telecommunications service” is a permissible reading of the Communications Act under the Chevron framework. In applying Chevron Deference, the Court noted that the question before it is

“whether the transmission component of cable modem service is sufficiently integrated with the finished service to make it reasonable to describe the two as a single, integrated offering. … We think that they are sufficiently integrated, because a consumer uses the high-speed wire always in connection with the information-processing capabilities provided by Internet access, and because the transmission is a necessary component of Internet access.”

The Court, touching on the potential for any carrier to define itself out of any common carrier obligations, noted:

“Respondents argue that the Commission’s construction is unreasonable because it allows any communications provider to evade common-carrier regulation by the expedient of bundling information service with telecommunications. Respondents argue that under the Commission’s construction, a telephone company could, for example, offer an information service like voice mail together with telephone service, thereby avoiding common-carrier regulation of its telephone service. We need not decide whether a construction that resulted in these consequences would be unreasonable because we do not believe that these results follow from the construction the Commission adopted. As we understand the Declaratory Ruling, the Commission did not say that any telecommunications service that is priced or bundled with an information service is automatically unregulated under Title II. The Commission said that a telecommunications input used to provide an information service that is not.separable from the data-processing capabilities of the service and is instead part and parcel of [the information service] and is integral to [the information service’s] other capabilities is not a telecommunications offering. … This construction does not leave all information service offerings exempt from mandatory Title II regulation. It is plain, for example, that a local telephone company cannot escape Title II regulation of its residential local exchange service simply by packaging that service with voice mail. … That is because a telephone company that packages voice mail with telephone service offers a transparent transmission path telephone service that transmits information independent of the information-storage capabilities provided by voice mail. For instance, when a person makes a telephone call, his ability to convey and receive information using the call is only trivially affected by the additional voice-mail capability. Equally, were a telephone company to add a time-of-day announcement that played every time the user picked up his telephone, the transparent information transmitted in the ensuing call would be only trivially dependent on the information service the announcement provides. By contrast, the high-speed transmission used to provide cable modem service is a functionally integrated component of that service because it transmits data only in connection with the further processing of information and is necessary to provide Internet service. The Commission’s construction therefore was more limited than respondents assume.”

Huh? I’ve got to mull this over a little more carefully, because I don’t quite understand how the Supreme Court did not just provide a path a mile wide to allow every controller of any bottleneck to define itself out of common carrier obligations simply by integrating any conceivable telecom service with an information service. Frankly, I’m not sure if the Supreme Court fully understands that we are moving to an all broadband world, where all services and applications can be fully integrated.

At the moment, I think I concur with the Scalia, Ginsberg, Souter Dissent. Justice Scalia, properly points to the absurdity of the Majority’s logic:

“Thus, I agree (to adapt the Court’s example, ante, at 18) that it would be odd to say that a car dealer is in the business of selling steel or carpets because the cars he sells include both steel frames and carpeting. Nor does the water company sell hydrogen, nor the pet store water (though dogs and cats are largely water at the molecular level). But what is sometimes true is not, as the Court seems to assume, always true. There are instances in which it is ridiculous to deny that one part of a joint offering is being offered merely because it is not offered on a “ ‘stand-alone’ ” basis, ante, at 17.

If, for example, I call up a pizzeria and ask whether they offer delivery, both common sense and common “usage,” ante, at 18, would prevent them from answering: “No, we do not offer delivery—but if you order a pizza from us, we’ll bake it for you and then bring it to your house.” The logical response to this would be something on the order of, “so, you do offer delivery.” But our pizza-man may continue to deny the obvious and explain, paraphrasing the FCC and the Court: “No, even though we bring the pizza to your house, we are not actually ‘offering’ you delivery, because the delivery that we provide to our end users is ‘part and parcel’ of our pizzeria-pizza-at-home service and is ‘integral to its other capabilities.’ ” Cf. Declaratory Ruling 4823, ??para??39; ante, at 16, 26.(Footnote 1) Any reasonable customer would conclude at that point that his interlocutor was either crazy or following some too-clever-by-half legal advice.”

Logic aside, the FCC now has its long-awaited decision and the green-light to embark on a dramatic path towards deregulation and the elimination of common carriage. Cable modem service is not telecom service and is therefore not subject to onerous Title II common carrier obligations. Parity, so the argument goes, requires that the Bells, other LECs and other delivery platforms be exempted from common carrier obligations. The big question remains: What does this mean for consumers, for unaffiliated ISPs, for edge device vendors, for Internet application providers, and for innovators and entrepreneurs?

* * *

Well, the FCC wins Brand X … or did it?

One thing is clear, the FCC now has its work cut out for it. As Common Carrier rules fall by the wayside, the FCC will now have to embark on a difficult path of finding the Title I authority it needs to come up with common-carrier-like obligations to impose on information service providers behaving like common carriers. I have some fear that this might mean some unintended regulation of those purer, information services that would never have been confused for common carrier services (e.g., like the imposition and extension of emergency response, lawful intercept and disability access obligations). I hope that we do not end up as collateral damage in the regulatory zeal to recreate Title II within Title I.

I have little doubt that an FCC defeat in Brand X would have given the Internet community a little more leverage in ensuring fair access to consumers, but I suspect that many pundits will overstate its dire implications for the Internet.

Clearly, unaffiliated ISPs now have fewer legal rights to access consumers than if the FCC had lost Brand X. But what are the implications on end-users and VoIP application providers? Is there a silver lining to Brand X? Admittedly, there is likely a little less leverage to compel the cable companies and the LECs, through application of parity principles, to allow consumers to access unaffiliated ISPs and, by extension the Internet content and applications of their choice.

In the absence of Common Carrier rules, in the absence of guaranteed access to end-users by consumers, isn’t there a more compelling need for some principle ensuring that consumers may control their own Internet experience without subjugation to the will of an entity that controls the last-mile bottleneck? I think this is now the moment for the FCC to strike a blow for Internet Freedom. I don’t care how we get there, via application of antitrust principles, a layered regulatory model, legally-sustainable application of the FCC’s Title I ancillary jurisdiction, but we all need to know immediately that the FCC will not tolerate any effort by any entity to choke a consumers access to the Internet content and applications of her choice, and the right to attach the devices of her choice to her end of her communications pipe.

* * *
And, a moment of truth is upon us. The old FCC won Brand X. Chairman Powell’s FCC. Did Chairman Martin’s FCC win Brand X? What did the old FCC and the Supreme Court bequeath to Chairman Martin?

I believe that the Supreme Court Brand X will unleash the FCC and trigger heavy deregulatory action. The FCC has been waiting (and waiting) for final resolution of the Brand X decision before it tackles the regulatory classification of all varieties of high-speed Internet access services. The FCC will now attempt to categorize and reconcile conflicting approaches to Internet access across multiple platforms. Most obviously, the FCC will attempt to develop a unified regime governing Internet access for cable modem service and for Bell-provided DSL and other broadband pipes.

In the United States, the Bell companies are still regulated as common carriers in their provision of DSL service and are required to offer their transmission capacity to unaffiliated Internet service providers. Now that it has been ruled that cable modem services are not subject to telecom "fair access" regulations, the Bells have a much stronger "parity" argument that their facilities also should not be subject to competitive access when offering broadband Internet access services.

Brand X will affect the course the FCC takes in several pending proceedings regarding the regulatory treatment of Internet access services, the ongoing viability of Computer II obligations and the deregulation of DSL and other broadband services. The FCC has also been holding in abeyance a couple other broadband proceedings pending a Supreme Court decision in the Brand X case.

The floodgates will now open at the FCC as it begins a concerted course of “deregulation” of the controllers of bottlenecks in the belief that such deregulation is essential to encourage broadband deployment. Let's hope the FCC recognizes that the real power of the Internet rests in the ability of the consumer to reach it and control her own experience. The one rule that must apply is that no one should be allowed to supress that consumer control and freedom.

… and let’s not forget Grokster

In a unanimous decision, the Supreme Court ruled that peer-to-peer software companies should be liable for the copyright infringement of people using their products. According to the Court:

“We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement.”

The Grokster decision could have deleterious effects on those companies enable file-sharing.

All-in-all, the Internet became a little less free today. But it does allow the FCC to rise to the occasion, champion the Internet and empower the consumer, rather than any LEC, cablecos, or ISP, to control her own communications experience.

… and let’s certainly not forget Pepper …

Frankly, I think Bob Pepper’s departure from the FCC might prove to be more problematic for the Internet innovators and entrepreneurs. Dr. Pepper is a rare government official who knew how to bridge the communications gap between government and industry. He’s been a remarkable ambassador for the FCC. I think it will be important for the Pepper to continue to serve some intermediating function between government and industry and for the FCC to find someone with Pepper’s rare gift to communicate. At a time like this, it would be good to know that we at least had the wisdom, understanding and goodwill of a Bob Pepper to fall back as we enter the potential era of the closed Internet. In his absence, we hope and trust that the FCC will see the light.

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Posted by jeff on June 27, 2005 12:54 PM | Permalink

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Comments

Posted by: injection molding at June 18, 2009 10:45 AM

First effects of Grokster

http://www.cs.princeton.edu/courses/archive/spring05/cos491/writing/ says:

'Heres the first change that Ive seen due to the Grokster decision. Bonpoo is a service that lets you send large files to other people. It used to be general-purpose; you could send anything to your friends. Now, post-Grokster, they only let you send photos:

IMPORTANT NOTICE: At bonpoo we are constantly testing file transfers services that help people send legal files across the Internet. Given the recent Supreme Court decision we have suspended our free file transfer services except for photos. We apologize for any incovience. Please check out our professional product HeavyMail for an alternative to our prior service.'

By the way, Bonpoo's website is http://www.bonpoo.com and HeavyMail's website is http://www.heavymail.com

Posted by: Lily at July 4, 2005 09:58 PM

There is no parity argrument for the Bells, for which they have always been a common carrier, unlike cable providers. This same "parity" debate should also apply to the pending mergers.

There are things people will need to think about in today's SC decision, one is applying current law as it is today.

This is what the SC did, applied the law. Now what it did do, is clearly state that the Cable-Co's are NOT common carriers as defined with current laws.

That being said, this should deflate the BOCs argument in using Cable-Co's as sufficient competition for all their forbearance requests.

They did NOT allow the Cable-Co's access to the telco networks in providing for competition, they had their own.

Though each provides a vehicle to reach the Public Internet, the BOC/LECs have a legal obligation to provide access to the PSTN, as the SC has said from the begining of their opinion.

Posted by: Frank Muto at June 27, 2005 10:05 PM

Maybe that is one thing that was done right in Israel. For political reasons, private access to the internet was not allowed until 1995 and ISP's need to have a license. I always thought that this was bad (I arrived here in 1996), but it prevents the telephone company (BEZEQ) and the cable company from becoming "information services".

They are both strictly common carriers and you need to connect via them to an ISP. What services you get from the ISP is between you and them, with the common carriers only providing bandwidth.

Geoff.

Posted by: Geoffrey S. Mendelson at June 27, 2005 02:09 PM

June 27, 2005

“Rainy Days and Mondays Get Me Down” -- 3 Blows to the Internet – Losing Grokster, Brand X, and Pepper – When it Rains, it Pours

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