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U.S. judges question FCC authority in Comcast case

* Judges appeared unsatisfied with FCC argument

* Comcast argued FCC acted based on nonbinding principles

* FCC chairman remains confident agency has authority

WASHINGTON, Jan 8 (Reuters) - U.S. judges put the Federal Communications Commission in the hot seat on Friday, questioning whether the communications regulator acted properly when it sanctioned Comcast Corp CMCSA.O for blocking file-sharing services on its broadband network.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit appeared unsatisfied with FCC arguments and was probing to determine whether the FCC acted based on established rules or direct authority from Congress involving broadband network management issues .

It appears the FCC acted based on policy statements that are “aspirational, not operational,” Judge A. Raymond Randolph told FCC General Counsel Austin Schlick in a packed courtroom.

The case, which may not be decided by the court for several months, could severely hamper the FCC’s push to maintain an open and free Internet through a “net neutrality” rule-making proposal if the judges decide the agency lacks regulatory authority.

That could prompt the FCC to ask Congress to move pending “open Internet” legislation that is waiting on the wings to give the agency cover if needed.

The FCC has argued it has broad authority through regulation of the cable and telephone industries.

“This case underscores the importance of the FCC’s ongoing rulemaking to preserve the free and open Internet,” FCC Chairman Julius Genachowski said in a statement.

“I remain confident the commission possesses the legal authority it needs and look forward to reviewing the court’s decision when it issues.”

In 2008 under then-Republican Chairman Kevin Martin, the FCC upheld a complaint accusing Comcast of violating the agency’s open Internet principles by blocking file-sharing services that distribute video and television shows.

Comcast then challenged the FCC order and asked a federal appeals court to reverse the action, which required the biggest U.S. cable operator to change its management practices.

NETWORK BLOCKING, OR MANAGEMENT?

At the moment the FCC is guided by a set of principles that date back to 2005 aimed at preventing Internet service providers from interfering with certain network traffic.

With the support of many advocates, the agency, under Genachowski, a Democrat appointed by President Barack Obama, proposed rules in October that would put teeth behind those guidelines.

Obama strongly backed an open Internet, or also called net neutrality, during the campaign and as a senator.

The FCC may not act on a final net neutrality rule that could affect Internet providers Comcast, AT&T Inc T.N and Verizon Communications Inc VZ.N until Spring.

But Comcast and other Internet providers argue they must engage in reasonable network management due to increasing bandwidth-hogging applications used by consumers.

During the oral arguments before the three-judge panel, an attorney for Comcast argued the FCC acted based on a set of nonbinding principles rather than on established rules or direct congressional authority.

“All that existed was a policy statement,” said Helgi Walker, an attorney representing Comcast, referring to the set of principles opposed to blocking, discriminating or degrading content by Internet providers.

Walker asked the judges to vacate the FCC order and erase the black mark from the company, which has already agreed to comply fully with the FCC requirements to alter its network management practices.

The FCC could salvage a win even if the judges decide that the FCC process -- not its authority -- was flawed because that could encourage it to move forward with its net neutrality proposal.

With that in mind, FCC’s Schlick and Marvin Ammori, an attorney representing public interest groups such as Free Press and Consumers Union, argued that, if the FCC lost the case, it was better for it to lose based on the agency’s procedures rather than on the grounds the FCC lacks broad authority. They urged the judges to provide guidance to help the FCC with future actions.

“We don’t give guidance. We decide cases,” Judge Randolph said. (Reporting by John Poirier; editing by Andre Grenon)

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