It's probably safe to say the authors of the U.S. Constitution couldn't have even begun to fathom a thing like the automobile or the telephone, much less the Internet.
Had it been around at the time, would George Washington have stayed home watching cat videos instead of leading the revolutionary army in its conquest over Great Britain? Would Thomas Jefferson have taken to Facebook in the presidential election of 1800 to accuse John Adams of being a "hideous hermaphroditical character, which has neither the force and firmness of a man, nor the gentleness and sensibility of a woman"?
While we may never know the answer to important questions like these, what we can say with a greater degree of certainty is that the Constitution, while far removed in time from the advent of the Internet, is the very reason a powerful federal court of appeals struck down (link opens PDF) so-called net neutrality last week.
A primer on net neutrality
All joking aside, net neutrality is a very serious issue.
It's based on the principal that Internet service providers like Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) should treat all data on the Internet equally. It was formally codified, at least until Tuesday, in a series of rules passed by the Federal Communications Commission, which prohibited broadband providers from blocking or otherwise discriminating against online content based on user, source, or application.
Under these rules, for instance, Comcast couldn't block or impede your access to a competitor's website, such as Netflix (NASDAQ:NFLX), in an effort to cause you to turn off the computer and tune into its own television cable operations, NBCUniversal. Along these same lines, Comcast was similarly barred from charging companies like Netflix a fee for prioritized access to end users -- think faster streaming speeds.
To be clear, this is more than just a hypothetical threat.
In the court case, which was brought by Verizon to challenge the FCC's net neutrality rules, its own attorney admitted, "but for the rules, we would be exploring those commercial arrangements." And in the past, broadband providers like AT&T (NYSE:T) and Time Warner have openly acknowledged that online video aggregators like Netflix and Hulu, which is owned by a consortium of media companies including Disney (NYSE:DIS) and the Fox Broadcasting Company, compete directly with their own "core video subscription services."
At this point, in turn, you'd be excused for wondering why a panel of highly educated and distinguished judges would eviscerate something as patently consumer-friendly as net neutrality. And the answer lies, as you may have guessed from the opening paragraphs of this column, in the U.S. Constitution.
The constitutionality of net neutrality
It's a well-known axiom of constitutional law that any power not vested in the federal government by the Constitution is reserved for the states. According to the 10th Amendment, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people."
Does this mean the federal government has no power to regulate things like the Internet that weren't even remotely envisioned by the authors of the Constitution? Of course not.
In the years since it was signed into law, courts have interpreted the Constitution liberally, if you'll excuse the unintended political connotation, around a handful of key provisions, one being the Commerce Clause, which gives the federal government the power to "regulate commerce with foreign nations and among the several states." The implication is that any activity that touches on interstate commerce, as the Internet most assuredly does, can be regulated by Congress, or, in this case, by a federal agency delegated authority by Congress.
Herein lies the issue at the heart of net neutrality
The question before the court in the case brought by Verizon was whether the FCC, in passing its net neutrality rules, had exceeded the authority granted to it by Congress in the Telecommunications Act of 1996. The answer to this question, according to the court, was both yes and no.
As the court explained:
[T]he Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. [...] That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such.
That is to say, the FCC can't have its cake and eat it to. If it expressly exempts broadband carries from treatment as common carriers, which presupposes more intense regulatory oversight, then it can't go back and treat them as such with specific rules, which is exactly what the court found in this case.
But here's the catch: The matter was remanded by the court to the FCC itself for "further proceedings consistent with this opinion." Thus, if you've been following along, one such course the FCC could take would be to classify broadband providers as common carriers, which would thereby presumably allow the agency to reinstitute full-fledged net neutrality.
Will it do so? That remains to be seen. But in the meantime, let's hope the absence of net neutrality doesn't spell the end of unfettered access to our favorite websites like Netflix and Amazon, and, for that matter, our favorite investments as well.
John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.