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Late last week, the Federal Communications Commission’s Enforcement Bureau and General Counsel’s office jointly released a Public Notice offering “initial guidance” on how Internet Service Providers can comply with the transparency and disclosure rules that the FCC adopted in its Open Internet Order last December.  These are among the same “net neutrality” rules that Verizon and MetroPCS filed lawsuits to stop last December – lawsuits that U.S. Court of Appeals for the D.C. Circuit dismissed as “premature” because the rules had not been published in the Federal Register. We expect that the clarifications and explanations in the new “initial guidance” will be contained in the Federal Register publication of the Open Internet Order, which will trigger a new round of judicial review.  In this sense, the timing of the guidance can be viewed as a pre-emptive effort to possibly eliminate or narrow the lawsuits that will eventually be filed following Federal Register publication.

In another sense, the Public Notice actually provides some clarity to ISPs on how to comply with the disclosure rules.  The FCC once again stated that the guidance is illustrative and that broadband providers can implement other approaches that will comply.  Here are the five areas where the FCC provided clarification: 

• Point-of-Sale Disclosures – The Open Internet Order requires ISPs to disclose network management practices, performance characteristics and commercial terms “at the point of sale.”  The Order further stated that, to meet this requirement, a provider must prominently display links to disclosures on a public website.  The FCC clarified that providers do not need to create or distribute hard copies of disclosure materials or to train sales employees to make such disclosures. Providers instead may direct prospective customers to the web page (not just the ISP’s home page) orally and/or prominently in writing.  In retail offices, broadband providers should have available devices that consumers can use to access the disclosures.
• Service Description – The Open Internet Order requires broadband providers to disclose accurate network performance information.  For fixed broadband, the 13 large ISPs that are participating in the FCC’s SamKnows speed test can use the results as a sufficient representation of what their customers can expect.  Those ISPs that are not participating in the project can use the methodology to measure actual performance.  The FCC plans to release the methodology and the results before the rules become effective.  Alternatively, ISPs may disclose actual performance based on internal testing, consumer speed tests or other reliable third-party sources.  For mobile broadband, the FCC is collecting data on broadband performance and, when that information has been analyzed, the FCC plans to provide further guidance.  Until that time, mobile broadband providers may disclose the results of their own or third-party testing.  For all broadband providers, the Public Notice encourages disclosure of the source and methodology used to evaluate performance, and expects disclosure to be modified if actual performance materially differs from the disclosure. Expect the standards of disclosure to evolve based on comments filed in the FCC's separate "Need for Speed" proceeding, where the FCC has sought comment on the types of broadband speed and performance information that would be of most use to consumers.
• Extent of Required Disclosures – The Commission stated in the Open Internet Order that its list of potential disclosure topics “is not necessarily exhaustive.”  Obviously, this statement aroused anxiety in ISPs who were concerned that potential findings of non-compliance for disclosures the FCC didn’t even mention.  Given this vagueness – and the potential legal pitfalls that could ensue – the Public Notice “clarified” that certain information contained in the Order will suffice for compliance “at this time,” though the FCC can determine in the future that that different disclosures are appropriate “at that time.”  The compliance disclosure topics are in paragraphs 56 (for all broadband providers) and 98 (for mobile broadband providers) of the Order and are summarized in this presentation.
• Content, Applications, Service and Device Providers – The Open Internet Order requires disclosure to content, application, service and device providers.  Given the uncertainty over what broadband providers must disclose to these edge providers, the Public Notice clarified that the disclosures sufficient to enable consumers to make informed choices will generally satisfy the disclosure obligations to edge providers.  Thus, the FCC anticipates that broadband providers should only need to have one set of disclosures, and “technologically sophisticated” edge providers should be able to rely on a disclosure statement that the broadband ISP provides to consumers.
• Security Measures – In response to claims that disclosure of numerous and constantly evolving security techniques would be unduly burdensome on broadband providers, the Public Notice reiterated the “touchstone” of its transparency rules – disclosure of information sufficient for consumers to make informed choices.  As examples, the FCC expects broadband providers to disclose if security measures intended to spread of viruses, malware, spam and other threats also prevent end users from running mail or web servers.  The FCC does not expect ISPs to disclose internal security measures that do not affect consumer choice, such as routing security practices.

Left unaddressed was the uncertainty surrounding enforcement of the Open Internet rules.  As we wrote in our earlier blog post, the FCC’s failure to articulate timing of decisions on complaints and remedies for non-compliance made it difficult for broadband providers to assess the risk associated with the complaint process.  At least with the guidance offered in the Public Notice, broadband providers have a little more clarity that will, hopefully, spur disclosures that are not put to the enforcement test.

There’s a kind of hush on the way as lawmakers and regulators in Washington, DC have quickly escalated their war on loud commercials in video programming.  On May 27, 2011, the Federal Communications Commission proposed new rules to implement the Commercial Advertisement Loudness Mitigation Act (the “CALM Act”), enacted by Congress on December 15, 2010.  These rule changes would incorporate new technical standards aimed at requiring broadcast stations, cable operators and other multichannel video programming distributors (“MVPDs”)  to turn down the volume of commercials in video programming. The FCC is required to prescribe regulations by December 15, 2011, and the new regulations would have to take effect within one year after the date they are adopted.  The comment cycle has been announced in the Federal Register. Comments are due on or before July 5, 2011 and reply comments are due on or before July 18, 2011. 

What has prompted legislation and new regulations designed to give viewers serenity from loud commercials?  According to the FCC, complaints about loud commercials are not new, but the rise of digital television has expanded the dynamic range of audio, both in program material and in commercials. The FCC stated that it has received more than 800 complaints about “loud commercials” since January 2008.  The CALM Act is not only specific in how Congress expects the FCC to tackle the issue, it also sharply limits the FCC’s authority on the matter.

As the CALM Act requires, the new rules would incorporate a technical standard published by the Advanced Television Systems Committee (“ATSC”) called ATSC A/85. A consumer’s home receiver would be capable of automatically adjusting volume based on metadata (called a “dialnorm”) encoded in the programming.  These volume adjustments would occur as programming transitions between program material and commercials or when the viewer changes channels.  Under the proposed rules, the ATSC A/85 standard and “successor” standards would be incorporated by reference into the rules and that public notice and an opportunity for comment would not be necessary.

For broadcasters and MVPDs, the new regulations likely will produce disquiet about increased regulatory risk and legal liability. Some considerations: 

• The rules would apply to all commercials transmitted by a broadcaster or an MVPD. There be no exceptions for commercials that are inserted by third-party content providers; thus raising questions about who bears the ultimate responsibility for compliance.  The rules would not be enforced directly against third-party content providers, and there will be situations where responsibility remains to be allocated – for example, if an MVPD carries a broadcast station’s programming that contains loud commercials.
• The FCC has raised some interpretive questions regarding what counts as a “commercial advertisement” for purposes of the rules. For example, the FCC wants to know whether the rules would include political ads by a legally qualified candidate or promotions of specific video programs. In addition, the FCC has asked about the impact on noncommercial broadcast stations, which are legally prohibited from broadcasting advertisements.
• Broadcasters and MVPDs would have new burdens to demonstrate compliance with the rules in response to a consumer complaint alleging loud commercials.  Compliance could occur with respect to a “safe harbor” under the statute or in other ways.  To qualify for the safe harbor, the entity would have to install, utilize and maintain in a “commercially reasonable manner” the equipment and necessary software to comply with the ATSC A/85 standard.  The FCC has sought comment on what practices are “commercially reasonable” for this purpose.  The FCC also wants to know other ways compliance can be demonstrated. For example, stations and MVPDs may choose to enter into agreements with content providers whereby the provider would agree to deliver content that complies with ATSC A/85 RP. The station or MVPD would remain responsible but could choose to negotiate for indemnification clauses in these contracts.
• Broadcast stations and MVPDs would be able to apply for a limited, one-year waiver from the CALM Act requirements based on financial hardship.  The FCC cites a Senate Committee report that estimates the cost of equipment as ranging from a few thousand to about $20,000 per device.  Under the FCC’s proposal, financial hardship would be demonstrated based on evidence of the station’s financial condition, cost estimates for new equipment, a detailed explanation of the justification for the postponement and an estimate of the time to comply.  Waiver proponents would not be required to demonstrate financial hardship.  The FCC has sought further comment regarding whether blanket waivers may be necessary in smaller markets.
• The FCC has identified “practical challenges” in compliance for some MVPDs who use a different type of audio system than the AC-3 system for which the technical standard was designed but who nevertheless would be subject to the rule.  The FCC has sought comment about these challenges.
• Some providers receive program material from third-party programmers.  The FCC wants input on the technical ability to pre-screen that content for loud commercials.
• The FCC has proposed a consumer-driven complaint process whereby consumers would be permitted to prepare and submit an online form that relates specifically to complaints about loud commercials.  There would be no filing fee, but the complainant would be required to submit contact information and specific information about the programming that is the subject of the complaint.  The broadcaster or MVPD receiving the complaint would be expected to retain records and documentation to demonstrate compliance. 

Despite the prevalence of digital video recorders (or more importantly, their fast-forward functionality) and the volume button on remote controls, through the CALM Act, Congress has charged the FCC to act quickly to combat loud commercials.  As the NPRM makes clear, however, questions remain, and we have yet to hear the answers.    

Now that the Sturm und Drang over the FCC’s new Net Neutrality Rules is in full throat, some lurking concerns warrant more attention – namely, concerns about the FCC’s enforcement of its new rules and the administration of its complaint process.  The FCC states that it seeks “prompt and effective” enforcement of its new rules, but eyebrows are arching regarding whether the current structure will effectively promote this goal. 

"The FCC states that it seeks 'prompt and effective' enforcement of its new rules, but eyebrows are arching regarding whether the current structure will effectively promote this goal."

First, some context.  Assume for the moment that you provide fixed or mobile broadband service and that the new rules survive unscathed after the administrative, judicial and legislative battles that are almost certainly on the way.  Someone believes that you have violated these rules – for example, your subscriber believes that you have failed to adequately disclose your network management practices, or an edge provider believes that you have blocked its lawful content (if you are a fixed provider) or an end user complains that you have unreasonably discriminated in transmitting their lawful network traffic over your network.  How can this aggrieved party seek legal relief, and what relief is available? 

The FCC has retained independent enforcement authority for the net neutrality rules, but as noted in Matthew Lasar’s overview at Ars Technica, the FCC's enforcement process is overwhelmingly complaint-driven.  The new rules give the aggrieved party two “backstop mechanisms” at the FCC in the event that the interested parties cannot resolve their dispute privately: a formal complaint process and an informal complaint process. 

• The formal complaint process imposes procedural obligations on the complainant and launches an adjudicatory proceeding.  Formal complaints will be addressed through “accelerated docket” procedures.  Before filing a formal complaint, the complainant must notify the respondent in writing that the complainant intends to file the complaint.  The complaint must comply with FCC processes, and the complainant must pay a filing fee (which may be the FCC Enforcement Bureau’s version of “paid prioritization”).  The complainant must “plead fully and with specificity the basis of its claims and to provide facts, supported when possible by documentation or affidavit, sufficient to establish a prima facie case of an open Internet violation.”  The rules set forth a timetable for answers and replies, and the FCC will issue an order “determining the lawfulness of the challenged practice.” 
• The informal complaint process, by contrast, is more akin to tossing “paper grenades.”  Anyone with a computer may submit informal complaints (for example, via the FCC’s website or to the agency’s Consumer and Government Affairs division) in an effort to draw the FCC’s attention to challenged practices and perhaps spark an investigation.  There are no “accelerated docket” procedures.  The FCC has stated that individual informal complaints will not typically result in written Commission orders, and the potential remedies and sanctions are unclear.

As Larry Downes describes in his essay regarding the costs of enforcement of net neutrality rules, allowing “any person” to launch net neutrality complaints triggers inefficiencies and transaction costs because the filer can shift enforcement costs to the FCC or to ISPs.  Its not hard to imagine a disgruntled group campaigning and recruiting others to file loosely worded complaints that tie up the resources of broadband providers as they respond to paper grenades launched via the FCC’s electronic transom.  What is hard is running a small business or getting financing while buried in paper when an FCC decision on a complaint – even in a frivolous case – may be months away. 

"Given the FCC's lack of resources (and authority?) to police the entire Internet and its long-standing enforcement track record, we should expect the process to remain complaint-driven..."

Given the FCC’s lack of resources (and authority?) to police the entire Internet and its long-standing enforcement track record, we should expect the process to remain complaint-driven; however, reliance on a formal complaint process alone would reduce the incentive for “any person” to file complaints in bad faith.  The FCC’s decision to make available the “informal” process in addition to the “formal” process may turn out to be costly for broadband providers.  Here’s why:  

• While the FCC has stated that “any person” may file a complaint, the formal complaint process has more mechanisms in place to deter the filing of non bona fide complaints – for example, there’s a $200 filing fee, procedural requirements and an “abuse of process” sanction against parties who file “unlawful” frivolous pleadings.  These mechanisms should make it much harder for competitors, disgruntled employees or others who suffer no actual harm to game the process. 
• The availability of informal processes may encourage the filing of “cookie cutter” complaints, where persons or groups may seek to launch a barrage of nearly identical complaints in an effort to get the FCC staff’s attention for political purposes. 
• The FCC does not set forth any particular remedy for an informal complaint other than saying that the FCC would “take appropriate enforcement action, including the issuance of forfeitures” for any net neutrality violation. 
• The FCC did not adopt any specific forfeiture amounts for violations, so the penalty would likely be set on a case-by-case basis. 

Also, if what is past is prologue, broadband providers should have concerns that the mere filing of an informal complaint, even a frivolous one, would have other consequences.  Consider the case of those broadcasters who have found that meritless indecency complaints have hindered their ability to conduct legitimate business.  The reason is the “enforcement hold” that the Enforcement Bureau imposes against broadcasters’ FCC applications (e.g., license renewals, approvals for transactions) when one or more complaints are filed against their broadcast station(s).  Under FCC policy, the presence of this “red flag” can force the broadcaster to become involved in potentially protracted negotiations to get FCC clearance for their proposed transaction or license renewal.  This pressure has resulted in some broadcasters giving up legal rights by entering into consent decrees (whereby the station pays a penalty to resolve the complaint but does not admit liability for the conduct) or tolling agreements (where the broadcaster agrees to forego its rights to challenge an FCC action that takes place outside of the statute of limitations; i.e., their “shot clock” for reaching a decision) with the FCC.  Essentially, licensees often face intense pressure to agree to “voluntary” concessions and to raise the white flag in an effort to get the FCC to drop their red one.

One way for broadband providers to minimize liability is to be sure that they are complying with the FCC’s transparency requirements.  Providers that make adequate disclosure of their network management practices, performance characteristics and commercial terms of service will enjoy greater latitude in negotiating with the FCC.  And, so long as those practices are followed, a complaining party will find its burden a bit more difficult to meet. 

Nevertheless, with the broadcast indecency lesson in mind, broadband providers should be concerned.  It is reasonable to expect significant litigation over the rules, just as the FCC’s indecency policies have been heavily litigated. The FCC may hold up informal complaints for a protracted period as the legal challenges continue – recall that there is no “accelerated docket” for informal complaints and even if there was, the FCC may claim authority to waive any its internal timetables for “good cause.”  Such a litigation tangle may result in stalled FCC enforcement and delays in application processing – delays that could apply differently to different categories of service providers because some are more dependent on FCC licensing than others. 

In short, enforcing the FCC’s net neutrality rules represents a regulatory thicket for broadband providers and others – one that is worth the effort to navigate around given the uncertainty and the legal challenges to come.