Universal Service Litigation Updates

The future of the $8.5 billion Universal Service Fund (USF), which supports broadband access in schools, libraries, and rural communities, hangs in the balance as three critical court cases move forward. In a rare twist, two cases saw oral arguments on the same day, adding a sense of urgency to the outcomes. 

These decisions could redefine affordable internet connectivity for students, families, and communities nationwide. Below, we summarize each case and outline the stakes for the E-rate and other USF programs.

Todd Heath v. Wisconsin Bell - Supreme Court

In 2008, Todd Heath, a whistleblower, filed suit against Wisconsin Bell, a subsidiary of AT&T. Todd Heath claims that Wisconsin Bell overcharged schools and libraries for several years and violated the FCC’s “lowest corresponding price” rule, which requires companies to provide service to schools and libraries at prices that are comparable to similarly-situated customers. Heath filed a lawsuit under the False Claims Act, which allows private individuals to bring claims on behalf of the government against entities defrauding federal programs.

The issue before the Supreme Court is a narrow one – whether the E-rate program is a federal program and whether the government “provides” the service, which is required to bring an action under the False Claims Act. 

The SHLB Coalition along with the Southern Education Foundation and others, filed an amicus brief supporting Todd Heath because of the importance of upholding the lowest corresponding price rule. Our concern is that if the False Claims Act does not apply, schools and libraries may pay more than they should for the broadband services they purchase.

In the November 4th oral argument, a majority of the Supreme Court justices supported our side of the case, although the outcome is still being determined. We expect a decision early next year.  If Todd Heath wins this appeal to the Supreme Court, the case will likely be remanded to the trial court for further proceedings.

School Bus Wi-Fi - 5th Circuit

In the summer of 2023, the FCC adopted a Declaratory Ruling allowing schools to obtain E-rate funding for Wi-Fi on school buses. Matthew and Maurine Molak, a couple whose son committed suicide after suffering from bullying in school, filed suit against the FCC’s decision in the Fifth Circuit Court of Appeals. The Molaks argue that the FCC exceeded its statutory authority and that E-rate funds should be limited to the “classroom.” SHLB intervened in this case and filed a brief arguing that Wi-Fi on school buses helps promote education and provides internet access to students who may not have it at home. 

The 5th Circuit held its oral argument in New Orleans on Nov. 4. Observers said it was difficult to predict the outcome, partly because the judges spent much of their time questioning whether the Molaks are “injured” by the decision and whether the court has jurisdiction over the case. A decision may come early next year unless the court holds the decision until the Supreme Court reaches other decisions, such as the Consumers’ Research case below. 

Consumers’ Research - Supreme Court

The Consumers’ Research case is perhaps the biggest threat to the Universal Service Fund since it was created in 1996. Over the past two years, Consumers’ Research has filed suit in several appellate courts, alleging that the quarterly USF contribution announcement is unconstitutional. Consumers’ Research argues that the FCC has expanded the Fund and imposes a tax on consumers that Congress did not specifically authorize. 

SHLB has intervened in all of these cases to support the FCC, arguing that Congress provided sufficient guidance in Section 254 of the Communications Act to satisfy the Supreme Court’s “intelligible principle” test.

The appellate courts in the 5th, 6th, and 11th Circuit courts agreed with SHLB and upheld the USF funding system as constitutional. But, on further review, the 5th Circuit Court en banc ruled 9-7 against us. 

The court made three findings: 

1. The USF collection is a “tax”
2. Congress did not provide sufficient limits on the FCC’s fundraising authority in the Telecommunications Act
3. The FCC should not have delegated its responsibilities to an outside party (the Universal Service Administrative Company, or USAC), whose Board members include beneficiaries of the fund. The 5th Circuit Court found that the “double delegation” of authority (from Congress to the FCC and from the FCC to USAC) violated the Constitution’s appropriations clause.  

This decision sent shock waves through the entire industry because the USF includes E-rate and Rural Health Care funding, the high-cost fund (which benefits rural telephone companies), and the Lifeline program (which benefits low-income consumers).  The 5th Circuit initially remanded the case to the FCC for further proceedings but later stayed its own decision pending Supreme Court review. SHLB and the Justice Department have asked the Supreme Court to take up the case, which is likely because there is now a split among the circuit courts.  

We expect the Supreme Court to grant certiorari and take the case in November, with briefs potentially due in January. A decision is likely before June 30, 2025.

Conclusion:

The outcomes of these pivotal court cases have the potential to reshape the landscape of affordable internet access across the United States. The FCC’s authority over the Universal Service Fund has never faced such an extensive challenge, putting programs that connect millions at risk. Further, these decisions will likely influence the Congressional Working Group’s efforts to reform USF legislation in the coming year, making SHLB’s role in these cases more crucial than ever.

As we await the courts’ decisions, SHLB is not just observing from the sidelines. We’re actively engaged—filing briefs, educating policymakers, and preparing materials to underscore the transformative impact of E-rate and Rural Health Care (RHC) programs. Our goal? To ensure these essential services continue to bridge the digital divide and uplift vulnerable and underserved communities.

Stay tuned as we update you on these cases and explore ways you can support our mission to protect affordable internet access for all.