Can The States Really Pass Their Own Net Neutrality Laws? Here’s Why I Think Yes.

We are seeing lots of activity in the states on net neutrality. The Governors of MontanaNew York and New Jersey have issued Executive Orders requiring that any broadband provider doing business with the state must certify that it won’t block, throttle, or prioritize any content or applications. Several states are looking at passing legislation applying some version of the 2015 FCC Net Neutrality Rules, with California furthest along in passing something that effectively replicates the pre-2017 rules. All of which raises the question — can the states actually do that?

 

The FCC not only says “no,” but in the 2017 Net Neutrality Repeal Order, the FCC purported to explicitly preempt any state effort to recreate any net neutrality rules. However, as I pointed out back in 2011 when Republican Commissioners wanted to preempt state reporting requirements, the FCC does not have unlimited preemption power. The FCC has to actually have some source of authority to preempt localities. Indeed, Chairman Pai was so insistent that the FCC lacked the authority to preempt state regulation of intrastate communications services that — in a highly unusual move — he refused to defend the portion of the FCC’s Prison Phone Order capping intrastate rates.

 

 

The critical question is not, as some people seem to think, whether broadband involves interstate communications or not. Of course it does. So does ye olde plain old telephone service (POTS), and state regulated that up to the eyeballs back in the day (even if they have subsequently deregulated it almost entirely). The question is whether Congress has used its power over interstate commerce to preempt the states (directly or by delegating that power to the FCC), or whether Congress has so pervasively regulated the field so as to effectively preempt the states, or whether the state law — while framed as a permissible intrastate regulation — impermissibly regulates interstate commerce (aka the “dormant commerce clause” doctrine). Additionally, certain types of state action, such a the action of the state as a purchaser of services, are exceedingly difficult (if not impossible) to preempt.

 

As always with complicated legal questions, one cannot be 100% sure of how a court will decide. But for the reasons set forth below, I’m reasonably confident that the states can pass their own net neutrality laws. I’m even more confident that a state can decide to purchase services exclusively from carriers that make enforceable pledges not to prioritize or otherwise discriminate against content. Mind you, I don’t think either of these is an effective substitute for federal Title II classification and the 2015 rules. But I encourage states to do what they can and for activists to push for state action in addition to federal action where possible.

 

More below . . . .

Interstate Communications, Intrastate Communications, and Mixed Jurisdictional Service.

 

To review the basic principle from Con Law 101, the U.S. is weird because we have a “federalist” system under which states are “sovereign” except for the explicit powers delegated to the federal government in the Constitution. So generally, states can make whatever laws they want about goods or services offered within the boundaries of their states. But one of the powers delegated explicitly to the federal government is to regulate commerce between the states. Additionally, courts have interpreted the Interstate Commerce Clause as prohibiting states from regulating commerce outside their borders — particularly where this would discriminate against out-of-state services. This gets somewhat complicated, however, because in theory anything a state does will have some impact on “interstate commerce.” So if the constitution prohibited states from doing anything that had any impact on interstate commerce, it would effectively eliminate the states own internal regulatory power — a result that directly conflicts with the whole “federalism” thing. Additionally, even with regard to interstate commerce, we have historic exceptions for states to regulate certain kinds of activities considered intrinsic to the power of the state and/or necessary for public safety.

 

In particular, states get to dictate how businesses operate in their state — even if these businesses offer items “in the stream of interstate commerce.” Nothing stops a state from regulating supermarkets, even though these sell lots of out of state items. Nothing stops a state from regulating car dealerships. Nothing stops a state from regulating how properties get rented — even if it involves Airbnb. But the Commerce Clause does impose some limits. If it wants to, the federal government can preempt state law that is inconsistent with federal regulation of interstate commerce (that is the combination of the Interstate Commerce Clause and the Supremacy Clause).

 

So it’s not enough to simply say that broadband is interstate. So are apples shipped from Washington State to Maryland. That doesn’t stop Maryland from having a lot of say in how apples get sold in Maryland, so long as Maryland doesn’t discriminate against apples grown outside the state and as long as Maryland regulation of the sale of apples doesn’t contradict any federal law on the sale of apples.

 

Moving from the general to the specific, we now turn to broadband and the regulation of communications services in the United States. Congress has created a federal agency, the FCC, that has general jurisdiction over “communication by wire and radio.” So broadband falls in the general jurisdiction of the FCC. But Section 152(b) explicitly recognizes the role of the states in regulating communications and expressly prohibits the FCC from regulating “intrastate communications.” Additionally, we have well over 80 years of history of states regulating how local telephone companies and local cable companies do business within their state. So this isn’t a case where Congress has “preempted the field” as against any state regulation. To the contrary, states traditionally have lots of authority over how they regulate any offering of local service, including an ability to impose non-discrimination requirements.

 

In telecom terms, we call something like broadband a “mixed jurisdictional service.” It has interstate elements and intrastate elements. So unless Congress has either expressly limited state authority, or delegated authority to the FCC to create federal policy in a way that preempts the states, the states can do whatever they want — subject to the usual limitations of the Commerce Clause.

 

But The FCC Explicitly Did Preempt The States? Why Doesn’t That Work?

 

Of critical importance to the preemption analysis (and why the cases cited by the FCC are inapposite), the FCC did not merely choose to eliminate net neutrality rules as a matter of policy. The FCC quite explicitly determined that Congress withheld authority over broadband from the FCC. That’s the whole Section 230 piece of the Order and Declaratory Ruling.   This, as I explained at considerable length over here, is a radical departure from the FCC’s previous determinations that it had jurisdiction and authority over broadband. And, as a radical departure, has rather dramatic consequences. If Congress explicitly withheld authority over broadband from the FCC, it withheld from the FCC the power to preempt any “contrary” state authority. The relevant case on this is National Association of Regulatory Commissioners v. FCC, 533 F.2d 601 (D.C. Cir. 1976) (“NARUC II“). There, the FCC attempted to preempt state regulation of cable leased access channels under its general Title I authority (since Congress had not yet passed the Cable Act). The D.C. Circuit found that the FCC’s general power over “interstate communication” did not give it the authority to preempt state regulation.

 

The preemption cases on which the FCC relies are distinguished by the fact that the FCC explicitly asserted jurisdiction to regulate the preempted services, and that additional regulation by the states would therefore be inconsistent with the exercise of the FCC’s authority. For example, in CCIA v. FCC, 693 F.2d 198 (D.C. Cir. 1982) (“Computer II“), the FCC explicitly stated it had authority over “customer premise equipment” (CPE) and was explicitly deregulating the market. The D.C. Circuit held that this differed from NARUC II precisely because in NARUC II, the FCC had no explicit grant of authority to preempt that states whereas the FCC explicitly retained its authority over CPE associated with interstate telecommunications services. Similarly, in the MN PUC VOIP case, the court relied on the FCC’s determination that it retained jurisdiction over VOIP services and was in the process of deciding how to regulate VOIP, warranting preemption while the FCC sorted this out. indeed, in this regard it is useful to note that the MN PUC recently re-asserted authority over VOIP — and the FCC has intervened in support of Charter to challenge this.

 

But even with regard to VOIP, the FCC has continued to maintain that it has authority and may even some day actually decide on the appropriate regulatory classification for VOIP (Title I or Title II). But with regard to net neutrality, the FCC has not even retained for itself the possibility of exercising authority. The FCC has found that Congress explicitly withheld authority from the FCC over broadband. The FCC’s net neutrality preemption is based on the novel theory that Congress conferred unlimited preemption authority over all “mixed jurisdictional” communications services — including information services — but expressly limited the ability of the FCC itself to regulate these services. This is certainly a convenient theory for an FCC Chairman whose highest priority is to “take a weed whacker” to any regulation special interests might find inconvenient. But — outside the peculiar legal bubble which is the Federalist Society — it is hard to find either cases or cannons of legal interpretation to support this.

 

Additionally, Congress has explicitly recognized the important role of the states in both protecting consumers of communications services generally (as embodied in the Communications Act in 47 USC 152(b), as well as other provisions), and explicitly recognized the important role of states in promoting broadband and broadband adoption (see 47 U.S.C. 1302, and the Broadband Data Improvement Act of 2008). Back in Verizon v. FCC, the D.C. Circuit found that, yes, Congress was in fact delegating authority to the states over broadband along with the responsibility to encourage broadband deployment. The FCC may have decided to reverse policy, but that does not require the states — to whom Congress has explicitly delegated authority — to do the same.

 

Again, I don’t want to claim 100% certainty here. But I have a lot of reason to be skeptical that Congress delegated the FCC extremely narrow regulatory power over interstate communications generally, but virtually unlimited preemption power. Absent an express delegation of preemption authority (such as 47 U.S.C. 253 preempting state laws that limit entry into the telecommunications market), the FCC’s preemption power is tied directly to its regulatory power. And while the FCC can interpret Section 230 as it likes with regard to its own authority, the D.C. Circuit has twice rejected the “Section 230 prohibits regulation of broadband argument” and explicitly recognized that Congress delegated authority to the states via 47 U.S.C. 1302. (It will be a fun Chevron deference case assuming the rest of the FCC’s Net Neutrality Repeal survives judicial scrutiny.)

 

The State’s Power As A Purchaser Is Particularly Protected From Preemption.

 

Still, even if the FCC proves correct that some combination of Section 1 and Section 230 give the FCC the power to preempt but not the power to regulate, that doesn’t end all state efforts. A growing number of states have issued executive orders requiring that any broadband provider with which the state does business must explicitly declare it will not prioritize, throttle or block legal content or services. As the State of Montana points out in this FAQ on why their Executive Order is not preempted, states have vast powers when it comes to their decisions as consumers in the marketplace.

 

These powers extend to matters usually prohibited by the Commerce Clause. For example, states can explicitly favor local providers over out-of-state providers when they decide to purchase goods and services. This is because the courts have distinguished between the state’s role as regulator and the state’s role as purchaser. Decisions on whether and from whom to buy services are considered intrinsic to the independence of the state in our federalist system. Again, while no power is without limit, nothing stops a state from saying it will only purchase services from vendors that meet its standards or conditions. If you don’t like the conditions, don’t compete for the contract.

 

 

True, trying to enforce net neutrality via the state’s purchasing power is not an effective substitute for actual net neutrality rules. An ISP can chose not to contract with the state, giving it the freedom to prioritize, throttle or block whatever it feels like. Additionally, if the state decides not to enforce the requirement, consumers are out of luck. Unlike a rule of general applicability, a contractual provision is generally only enforceable by the parties. I have not looked at the ability of third party beneficiaries to enforce contract terms since law school, but I don’t want to pretend that state contract requirements can substitute for actual enforceable rules.

 

Nevertheless, if you can’t do what you want you do what you can. These state actions certainly help (as long as we don’t imagine they can substitute for restoring the 2015 rules), and they send a strong signal to Congress that people are not happy with the repeal of net neutrality and would be much happier if Congress repealed the repeal with a CRA.

 

Conclusion

 

As always when debating law, particularly a complicated area of law such as this, the other side has its own arguments and it will ultimately be up to a court to tell us which one of us is right. As for the industry complaints that they can’t possibly manage 50 different state regimes, I will point out that the vast majority of interstate services manage just fine. Heck, y’all managed a combined federal and local regulatory regime for telephone service and cable service.

 

But perhaps more importantly, you all should have thought of that before you got your buddies at the FCC to repeal the highly popular net neutrality rules when you could have patiently whittled away at the stuff you didn’t like with forbearances and favorable interpretations — or continued to lobby Congress to change the law. Did you learn nothing from when you got Congress to repeal the FCC’s broadband privacy rules? Messing with people’s enforceable broadband consumer protections really pisses them off. The history of net neutrality from the Internet Policy Statement to reclassification in 2015 is a constant cycle of industry pushing back against relatively light regulation, winning, generating backlash, and ending up with stronger regulation. I have no idea where this ends up in the short run. But it would be utterly consistent with the last 10+ years for repeal of the federal net neutrality rules to create 50 different local versions for ISPs to manage.

 

Stay tuned . . .

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