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California’s net neutrality law: Will it survive judicial review?
On Sunday California Governor Jerry Brown signed Senate Bill 822, the state’s stringent new net neutrality law. The California Internet Consumer Protection and Net Neutrality Act of 2018 has been described as restoring the Federal Communications Commission’s (FCC) 2015 Open Internet Order, though in some ways California’s law reaches further than the FCC did. Unsurprisingly, the US Justice Department promptly sued to block the state law, arguing it was preempted by the FCC’s new deregulatory approach to broadband regulation. This post will analyze the California law and the preemption argument that will determine whether it takes effect.
California’s stringent net neutrality rules
The FCC’s 2017 Restoring Internet Freedom Order prompted a flurry of activity designed to restore at the state level what had been repealed at the federal level. Net neutrality supporters described California’s SB-822 as the “gold standard” because of the tough stance it took on broadband providers. Like many other state efforts, SB-822 duplicates the 2015 Open Internet Order’s familiar prohibitions on blocking, throttling, and paid prioritization. It also resurrects the FCC’s vague and awkwardly worded restriction on unreasonably interfering with or disadvantaging the ability of consumers and internet content providers to reach one another. But in other ways the act goes further than the now-defunct FCC rules. For example, SB-822 imposes more significant restrictions on zero-rating and interconnection than the FCC did, and regulates other services (such as video or voice service) that a broadband provider offers over the same network.
The Justice Department’s challenge
Even before the ink dried on Governor Brown’s signature, the Justice Department challenged SB-822 in federal court. The Restoring Internet Freedom Order contains a robust preemption clause designed to prevent precisely what California has done:
We therefore preempt any state or local measures that would effectively impose rules or requirements that we have repealed or decided to refrain from imposing in this order or that would impose more stringent requirements for any aspect of broadband service that we address in this order.
Given the ways in which SB-822 tracks the language of the Open Internet Order and the ways that it exceeds it, California can hardly deny that the bill “would effectively impose rules or requirements” that the FCC “repealed or decided to refrain from imposing.” California’s primary defense is that the FCC order’s preemption provision is invalid.
But as the Justice Department notes, the Hobbs Act prohibits California from making this argument in this proceeding. The Hobbs Act vests exclusive jurisdiction in the circuit courts of appeal to “enjoin, set aside, suspend (in whole or in part), or to determine the validity of” FCC orders. Ninth Circuit case law makes clear that the district court lacks jurisdiction to declare the preemption provision invalid — even if, as here, California makes the argument defensively. Because the court must presume the preemption clause is valid, it seeks an injunction declaring that SB-822 is preempted and preventing California from bringing the statute into effect.
The broader preemption question
The Justice Department is likely to win its motion, though that will not answer the ultimate question: Is the preemption provision valid? That question is likely to be answered by the DC Circuit Court of Appeals in the primary appeal of the Restoring Internet Freedom Order (in which California is one of many petitioners). As I discussed in an earlier blog post, the Voice Over Internet Protocol (VOIP) cases suggest the answer is yes. In the mid-2000s, Minnesota sought to regulate VOIP under state telephone laws. The FCC preempted that decision, suggesting that state regulation would interfere with the agency’s “long-standing national policy of nonregulation of information services.” The court upheld the preemption, holding that “[c]ompetition and deregulation are valid federal interests the FCC may protect through preemption of state regulation.”
Proponents of SB-822 have highlighted one wrinkle in this preemption analysis. They argue that by repealing Title II, the FCC has disclaimed any authority to regulate broadband network management practices. By doing so, the agency has opened a regulatory void that California and other states are free to fill. In other words, they argue, the Restoring Internet Freedom Order provides no basis for the FCC to assert an affirmative policy of deregulation, so there is no valid federal interest that conflicts with California’s regulation.
This is an interesting argument that does complicate the preemption analysis. But ultimately I think it misunderstands that import of the Restoring Internet Freedom Order. Under the Supreme Court’s Brand X decision, the FCC is free to classify broadband service as a Title II telecommunications service or a Title I information service. It also has authority to regulate information services under its ancillary authority or to forebear from applying particular provisions of Title II. Legally, it has a wide range of regulatory options for broadband service, from nonregulation to complete common carriage treatment. Along that spectrum, it made a policy choice to classify broadband as an information service and subject it to extensive transparency requirements, but it decided not to impose more intrusive common carrier-like obligations, because it determined that more intrusive regulations would have adverse effects on consumers and innovation.
SB-822 upsets this carefully calibrated federal regulatory scheme. It imposes the very restrictions on broadband providers that the FCC chose, for good reason, to avoid. The case is similar to Geier v. American Honda Motor Company, which involved the conflict between a federal regulation that required automakers to install airbags in some (but not all) cars, and a lawsuit claiming state law required airbags in all cars. The Supreme Court indicated that the state rule would conflict with the objectives of the carefully balanced federal rule and therefore was preempted by the rule. Similarly, SB-822 conflicts with the Restoring Internet Freedom Order’s balanced approach of promoting broadband service through transparency and antitrust oversight rather than common carriage and other more stringent regulations.
SB-822 also raises other issues regarding the limits of California’s authority to regulate interstate communications under the Communications Act and the Dormant Commerce Clause, some of which have been raised in an industry suit against SB-822. If SB-822 is struck down, California will continue to play a role in regulating broadband providers by enforcing general consumer protection laws alongside the Federal Trade Commission, just as it does for many other industries. But preemption would prevent one state from unilaterally imposing regulations in direct conflict with the policy of the FCC, the nation’s primary communications regulator.