Posted by: Joan Marsh on February 8, 2017 at 10:03 am
FCC reform is a topic of much discussion these days. Indeed, Chairman Pai has already initiated some important process reforms and we anticipate that more are coming. Clearer and more transparent processes will lead to better regulatory results.
We have also been contemplating reform and will, from time to time, be posting our ideas for regulatory and structural reform at the FCC. We start with some ideas for reforming process at the Enforcement Bureau – a Bureau that operated for many years with professionalism but whose recent practices have been marked increasingly by bad process, novel and tenuous theories of liability, and Notices of Apparent Liability (NALs) that languish after adoption.
There are a number of areas where we believe the enforcement process can and should be significantly improved:
Rulemaking via Enforcement: The Bureau recently has used enforcement actions to create substantive requirements that have not previously been articulated or formally adopted by the FCC. Concerns about this practice have been voiced by many in the industry as the Bureau offered strained and novel readings of FCC rules that were often at war with longstanding communications concepts. Establishing substantive requirements within the context of an enforcement action runs counter to accepted notions of due process and fundamental fairness and should be avoided.
This practice is particularly dangerous because parties to enforcement actions often feel pressure to settle to avoid litigation costs. If the matter is settled, the new requirements become enshrined and apply not only to the parties that were subject to the enforcement investigation, but also to everyone else in the industry. In the privacy context, an entirely new class of protected information was fashioned in a NAL against two small companies despite the fact that, in 16 years of FCC precedent, the information at issue had never been considered “protected.” When the companies settled the dispute for a relatively small sum, new obligations emerged without the requisite notice and comment period required by the Administrative Procedure Act (APA). The new requirements were then referenced in the FCC’s privacy rulemaking as settled law.
Continuing and Enhanced Liability: Section 503 of the Telecommunications Act requires the Commission to take enforcement action within one year of an alleged violation. To circumvent this one-year deadline, the Bureau adopted increasingly aggressive theories of “continuing” liability where the Bureau concluded that a party’s failure to address an alleged incident of misconduct could be deemed a “continuing violation,” extending the agency’s reach back to the first alleged violation date even if that original date far exceeded the one year statute of limitations – an approach that effectively neutered any limitation at all. This approach was endorsed in a February 2015 Policy Statement, which was never subject to APA notice and comment, and which is currently being challenged by CTIA, USTA, NCTA and COMPTEL in a petition for reconsideration.
Similarly the Bureau has repeatedly relied on enhancing factors to drive proposed penalties to stratospheric levels – even for mundane administrative violations and for issues arising from third-party conduct. Regulated companies should not be subject to extreme and multiplied penalties when they took reasonable and appropriate steps to comply with the law and the Commission should provide more detailed guidance on when enhanced penalties are appropriate.
Enforcement without End: The Bureau has also adopted the troubling pattern of rushing to judgment on NALs – which are released with much press fanfare – but then failing to convert those NALs into final forfeiture orders. Half-baked and incomplete investigations should not move forward to NALs. To prevent this, the Bureau should be required to apprise the subject of an NAL of the specific claims that will be made against it and give it an opportunity to respond before the NAL is issued. The Commission should also refrain from turning NALs into press events. An NAL is a Notice of Apparent Liability – not an adjudication of actual liability.
To ensure that NALs are timely resolved, the Commission should establish a hard deadline for issuance of a forfeiture order once a NAL has been released. Parties have only 30 days to file an opposition after receiving a NAL. The Bureau should then be required to resolve the matter either through settlement or formal circulation of a final forfeiture order within six months of receiving the opposition. If the inquiry is not formally resolved within that time frame, the inquiry should be deemed dismissed by operation of law, and the Bureau should be required to issue a Public Notice announcing the dismissal. Such an approach would encourage investigatory discipline before a NAL issues and would give parties clarity on process after they have presented their public opposition. It would also discourage the issuance of NALs that are lacking in merit.
Reform in these areas will lead to better processes, better investigations and better results. No party ever likes to be before the Enforcement Bureau but, when issues do arise, regulated entities should be prosecuted only for violations of established laws, should be able to mount legitimate legal defenses and should expect a fair process along the way.