August 22, 2017

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Is Antitrust Law a Viable Substitute for Net Neutrality?

In April 2017, FCC Chairman Ajit Pai issued a Notice of Proposed Order, Restoring Internet Freedom, seeking to reverse the FCC’s previous adoption of “net neutrality” principles in its March 2015 Open Internet Order. Net neutrality is the principle that internet service providers (“ISPs”) should treat all data equally, regardless of source.

While consumer advocates, industry participants, government regulators, and others debate the merits of the FCC’s proposed rule reversal, some antitrust practitioners have started wondering to what extent, if any, can antitrust law serve as a viable substitute for net neutrality.

In her recent article, “Antitrust Over Net Neutrality: Why We Should Take Competition In Broadband Seriously,” FTC Chairwoman Maureen K. Ohlhausen argues that antitrust law can protect consumer interests just as well, if not better, than net neutrality because of the competitive nature of an open market “free of artificial restraints on trade and exclusionary practices.” Ohlhausen contends that in the unlikely event that anticompetitive discrimination materializes, traditional antitrust enforcement is available as a backstop.

Ohlhausen disagrees with the idea that prophylactic rules such as the Open Internet Order are necessary to prevent future harmful conduct because ISPs have little incentive to discriminate against content preferred by their customers. She points out that “[i]n the last decade, during much of which time no net neutrality rules were in effect, ISPs almost never blocked disfavored content.” She further notes that the few instances where ISPs suppressed desired content “triggered a strong response from the FCC and the public.”

Ohlhausen also claims that the 2015 Order’s “unyielding, per se ban on paid prioritization is difficult—if not impossible—to square with economics.” After all, it is generally accepted that vertical arrangements do not harm consumers because they often boost efficiency and competition. Further, ex ante regulation is traditionally only justified where market forces are inadequate, such as natural monopolies. Ohlhausen contends that ISP markets do not fall into this category because of growing competition among ISPs.

Thus, Ohlhausen concludes that the inflexibility of net neutrality makes it inferior to antitrust enforcement, which would allow a case-by-case analysis of ISP behavior. Such enforcement would not prohibit paid participation when the “procompetitive effects—faster delivery of content favored by consumers—outweighed the exclusionary effects.”

Net neutrality proponents, however, generally hold a dim view of the idea that market forces are sufficient to curb anticompetitive conduct. Proponents point out that most Americans have limited choices when it comes to ISPs; in fact, many only have one or two options for broadband internet access. Proponents further argue that smaller competitors such as startups may not be able to pay ISPs as much as dominant, well-financed incumbents for preferred access, thereby putting them at a severe disadvantage.

Fellow FTC Commissioner Terrell McSweeny has been particularly critical in this regard. In a statement on April 27, 2017, she remarked that Chairman Pai’s proposal to reverse the FCC’s net neutrality rules supports “an inherently anti-consumer policy.” Following the FCC’s vote in favor of Pai’s proposal, McSweeny asserted that the FCC’s departure from net neutrality “will lead to the stifling of innovation as large gatekeepers determine who can access broadband networks and what services and offerings they can provide. This puts greater power in a few broadband companies while stymieing the types of innovations and services that have made our economy more dynamic.”

Others further contend that antitrust law is not a sufficient alternative for net neutrality. As a practical matter, antitrust litigation is often costly, time-consuming, and untimely (i.e., relief may come “too late” after the conduct has happened). Moreover, proponents claim that while antitrust law typically focuses on price and output effects—quantifiable in dollar terms—it fails to protect nonpecuniary values such as freedom of speech and democratic participation.

Some even suggest that the FCC’s current net neutrality approach does not go far enough. Despite the FCC’s original order, some argue that the number of instances where ISPs have throttled or blocked disfavored content are both understated and ever-growing. Furthermore, many of the largest ISPs have created private content delivery networks that afford them “fast lanes” embedded within their own ISP networks. Additionally, some ISPs claim that the FCC’s Open Internet Order allows them to block, throttle, or even provide “fast lanes” so long as they are open with consumers and do not claim to be a neutral or indiscriminate pathway for content.

While the debate is still ongoing, lawyers should start considering the role that antitrust law can play to protect competition and consumers on the internet from the harms meant to be addressed by net neutrality.

*Brittany Walter is a summer associate at Sheppard Mullin, and has contributed to this article.

Copyright © 2017, Sheppard Mullin Richter & Hampton LLP.

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