Net Neutrality and the Startup Community

February 21, 2014

The startup community has been hearing a lot lately about net neutrality. What is net neutrality? Why is it making headlines? Why should should startups be worried? In the following paragraphs, we will address these questions.

Net neutrality, also known as network neutrality or Internet neutrality, is the principle claiming that Internet service providers (ISPs) and government should treat all data on the Internet equally, meaning that Internet users should be able to access any web content they choose and use any applications they want, without their ISP imposing limitations or restrictions. Net neutrality regulations were first approved by the U.S. Federal Communications Commission (FCC) in December 2010. In January 2011, telecommunications giant Verizon filed suit against the FCC, challenging the net neutrality rules. In particular, Verizon argued that the FCC does not have enforcement authority.

Net neutrality is making headlines because, last month, in Verizon v. FCC, No. 11-1355 (D.C. Cir.), the U.S. Court of Appeals for the District of Columbia Circuit finally issued a ruling in the case, striking down the FCC's net neutrality rules. The court ruled that because ISPs are not classified as traditional telecommunications services, or "common carriers," the FCC cannot impose on them its anti-discriminatory regulations. The FCC has decided not to appeal the ruling; instead, the agency will examine the possibility of drafting new net neutrality rules. Yesterday, The New York Times reported that the FCC already has unveiled a new proposal that would "discourage Internet service providers from charging companies to stream their movies, music and other content through a faster express lane." Although the FCC has not written the formal rules, it has begun accepting public comments on its newest proposal.

Supporters of net neutrality rules contend that it is necessary to keep big service providers, such as Verizon, from discriminating against those content providers that do not pay for access to premium lanes of traffic. This effect of this would be that the big service providers would begin charging a premium to content providers eager to reach consumers at faster speeds, thus creating two classes of Internet experience. Opponents of net neutrality rules believe that regulation of the Internet is potentially harmful to our free and competitive marketplace. According to the opponents, the openness of the Internet is one of its greatest benefits, and placing restrictions on that openness will have long term effects on consumer and marketplace choice.

The startup community fears that the court's decision to strike down the net neutrality rules will stifle innovation because it opens the door for ISPs to offer preferential treatment to established companies that can afford to pay a premium. For startups trying to market their services or products, the Internet levels the playing field by allowing low-cost access to a large audience. Startups also use Internet-based services, such as Skype and Vonage, to keep operating costs down.

We will continue to monitor these areas of reform that are so vital to startups and small businesses. In the meantime, keep in mind that the Law Office of Kristina M. Reed is committed to helping entrepreneurs and all small business owners achieve their dreams by providing the foundation needed for success. Our goal is to help you grow into a successful business. We are highly experienced in all phases of business law, from startup to profitability, and we can help guide your young company through all stages of its growth and success. If you have questions about your California business or startup, please contact us.