Comcast Wins Federal Court Ruling Over FCC Censure of Internet Traffic

Federal regulators lacked authority to censure Comcast Corp. for interfering with subscribers’ Internet traffic, a U.S. court said in a decision that could limit the government’s power to police companies’ Web behavior.

The U.S. Court of Appeals for the District of Columbia Circuit, in a unanimous decision by a three-judge panel, vacated the Federal Communications Commission’s 2008 order against the largest U.S. cable company.

The ruling is a setback for Internet companies led by Google Inc. and Amazon.com Inc. that want so-called net neutrality rules to keep Internet providers such as Comcast, Verizon Communications Inc. and AT&T Inc. from limiting Web traffic.

“The D.C. Circuit’s dropped a bomb on us,” Ben Scott, policy director of the advocacy group Free Press that challenged Comcast and sided with the FCC, said in an interview. “Comcast is now permitted to block Web sites with impunity.”

The FCC in 2008 censured Comcast for blocking subscribers using peer-to-peer software often used to view videos, a decision hailed by consumer groups as a step toward keeping Web traffic free of obstruction from corporations. Comcast said it delayed some file transfers to alleviate network congestion.

Today’s decision “invalidated the prior commission’s approach” and didn’t “close the door to other methods” for “preserving a free and open Internet,” FCC spokeswoman Jen Howard said in an e-mailed statement.

White House ‘Committed’

The White House spokesman Robert Gibbs said President Barack Obama supports net neutrality.

“We’re committed to that and committed to providing businesses with the certainty they need as well,” Gibbs said at his daily press briefing.

“We are gratified by the court’s decision,” Sena Fitzmaurice, a Comcast spokeswoman, said in an e-mailed statement. “Comcast remains committed to the FCC’s existing open Internet principles, and we will continue to work constructively with this FCC.”

The court said a “variety of substantive and procedural reasons” precluded the FCC from having authority over Philadelphia-based Comcast’s Internet practices.

The decision “creates a dangerous situation, one where the health and the openness of the Internet is being held hostage” to the behavior of telephone and cable companies that own the wires used for Internet traffic to homes and businesses, said the Open Internet Coalition in an e-mailed statement.

‘Neutrality Rules’

The Washington-based group, which lists members including Amazon, Google, EBay Inc. and IAC/Interactive Corp., said the ruling could eliminate the agency’s ability to write new open- Internet rules.

The FCC is taking comments until April 8 on net neutrality rules that would forbid companies from favoring content they own, and from blocking or slowing rivals’ services.

Today’s decision “represents a severe limitation on the agency’s future authority” to regulate companies’ activities on the Internet, said Andrew Jay Schwartzman, a Washington-based attorney who helped defend the FCC’s position in the case, in an interview.

The FCC may appeal the case, and may “seriously consider” placing Internet services into a stricter regulatory classification, said Andrew Lipman, a Washington-based partner in the media, telecommunications and technology practice at Bingham McCutchen LLP, in an interview.

‘Destructive Consequences’

Scott, the Free Press policy director, said the decision leaves FCC Chairman Julius Genachowski “powerless to stop people from blocking Web sites, unless he acts to reassert his authority” by moving Internet service under telephone rules --a step Scott said could be taken with a simple majority vote at the Democrat-dominated agency.

Such a reclassification of Internet service would have “far-reaching and destructive consequences” including “years of “investment-deterring uncertainty and litigation,” companies including AT&T, Verizon and Time Warner Cable Inc. said in a Feb. 22 letter to the FCC.

The Open Internet Coalition said the FCC should “clarify its authority” over providers of Internet service.

Internet Users

Verizon said in a statement that the court’s decision would have “no impact” on Internet users whose “interests remain fully protected.” The court recognized the FCC has authority over Internet access, said Verizon General Counsel Randal Milch in the statement.

On Jan. 13, FCC senior counselor Colin Crowell said in an e-mail that if the appeals court “removed the legal foundations of the agency’s current policy framework, the commission would act expeditiously to ensure that consumers are fully protected.”

Separately, the FCC and the Justice Department are reviewing Comcast’s proposed $28 billion deal for control of General Electric Co.’s NBC Universal unit.

The case is Comcast Corp. v. Federal Communications Commission, 08-1291, U.S. Court of Appeals for the District of Columbia Circuit (Washington).

To contact the reporters on this story: William McQuillen in Washington at bmcquillen@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net.

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