The wait is over, net neutrality watchers – the first legal challenge to the Federal Communications Commission’s new rules has been filed, so those who have waited with baited breath can feel free to exhale. 

Yesterday, Verizon and Verizon Wireless filed a notice of appeal with the U.S. Court of Appeals for the D.C. Circuit seeking to strike the rules adopted in the FCC’s December 23, 2010 Report and Order (the R&O).  The fact that Verizon lobbed the first volley in this near-inevitable litigation is unsurprising, and Verizon’s efforts will have a ripple effect on how and where the appeal is heard. As we've blogged about before, these rules – transparency, no blocking and no unreasonable discrimination, as set forth in 194 pages – have stirred debate in DC among service providers, lawmakers, lawyers, lobbyists, policy influencers and the just plain interested.  The rules have not even taken effect – that will happen 60 days after the date of a Federal Register notice announcing that the Office of Management and Budget has approved the information collection requirements contained in certain of the new rules.  The text of the R&O itself has not yet been published in the Federal Register – and that’s where things get interesting.

Verizon’s filings make clear that Verizon believes that the D.C. Circuit would provide a receptive audience to Verizon’s concerns – one with exclusive jurisdiction to review the matter at this stage. Here’s where the Federal Register comes into play.  There are two permissible tracks for appellate review of final FCC decisions, and Verizon is attempting to rely upon the track that requires review by the D.C. Circuit and does not require that the FCC decision be published in the Federal Register. 

• For Track #1, the D.C. Circuit Court of Appeals has exclusive authority to review certain statutorily defined FCC decisions – generally dealing with FCC licensing matters.  Verizon claims that the R&O modifies Verizon’s licenses, thus triggering the exclusive jurisdiction of the D.C. Circuit.  Verizon’s argument relies on the FCC’s assertions in the R&O that it has authority to impose net neutrality rules because the FCC has statutory authority to change license terms and to propose new requirements on existing licenses, provided that it complies with statutory procedures.
• Track #2 is available for review of all FCC decisions except those that are governed by Track #1.  In track #2, review of certain decisions can be obtained by any U.S. Court of Appeals in any judicial circuit once that decision is published in the Federal Register. As noted above, this triggering event has not yet happened with respect to the R&O. At least one court has found that a Track #2 appeal filed prior to Federal Register publication must be dismissed as incurably premature (the Council Tree case).  Under the Track #2 approach, if appeals are filed by multiple parties in multiple circuits, there is a process for consolidating appeals in one court.

When a single FCC document contains elements of both a rulemaking (i.e., establishing rules of general applicability) and an adjudication (i.e., resolving a specific dispute among parties before the FCC), things are more complicated.  Under FCC rules, the deadlines for the adjudicatory portions are calculated based on the release date of the FCC’s decision, while the deadlines for the rulemaking portions are calculated from the date of Federal Register publication.  Verizon has acknowledged that the R&O has elements of both a rulemaking and an adjudicatory decision and has stated an intention to file a separate appeal with the D.C. Circuit upon Federal Register publication.  Clearly, Verizon is trying to cover both bases with a “belt and suspenders” approach.

The receptive-audience hypothesis finds more support in Verizon’s unusual request to have the same three-judge panel that heard the Comcast case hear Verizon’s appeal.  In Comcast v. FCC, decided last April, the D.C. Circuit struck the FCC’s efforts to enforce certain of its net neutrality policies (prior to their codification last December) in a complaint against Comcast regarding alleged interference with peer-to-peer networking applications.  The Court found that the FCC failed to link its assertion of authority to any statutorily mandated responsibility and thus lacked authority to regulate an Internet Service Provider’s network management practices.  Verizon essentially is asking the D.C. Circuit to consider the R&O to be a response to the Comcast case and to have the same three-judge panel handle this appeal.

Will Verizon succeed in having the case heard in the D.C. Circuit?  We certainly can expect challenges to Verizon’s filings in addition to challenges to the R&O filed by other parties.  Public Knowledge quickly expressed its displeasure with Verizon’s efforts, and supporters of the FCC’s R&O undoubtedly will follow.  Expect arguments over whether the court lacks jurisdiction because it is incurably premature a la the Council Tree decision  Some may challenge whether the R&O actually amounts to a license modification because the R&O states that it does not take effect until some future date or because the R&O cites numerous statutory grounds for authority other than the bases cited by Verizon.  Expect appeals in other judicial districts, although these will have to develop some creative arguments to avoid dismissal on Council Tree grounds if Federal Register publication is not complete at the time.

Action at the FCC also will play a role.  The FCC handles the process of submitting the R&O for Federal Register publication.  If Federal Register publication happens in the near future, expect Verizon to make additional appellate filings with D.C. Circuit on that basis as well and to ask either for consolidation of its appeals or for the court to select the appropriate docket.  In addition, some parties may exercise their rights to seek reconsideration of the R&O by the FCC and/or may seek a stay at the D.C. Circuit pending such reconsideration.

The upshot here is that the FCC’s new net neutrality rules will be shaped by the appellate process, and Verizon’s filings represent simply the first attempt to leverage appellate procedures to influence the outcome of that process.