Net Neutrality Challenge Tests States’ Power Over Net Traffic

The Trump administration’s challenge to a California net neutrality law will test whether states can enact tougher regulations on internet traffic than the Federal Communications Commission.

The U.S. District Court for the Eastern District of California will likely rule this fall on a Justice Department request, joined by trade groups for providers including AT&T Inc. and Comcast Corp., to stop implementation of the state law while they challenge it.

Some observers say the administration is likely to prevail in the end.

“California’s law is ultimately on shaky ground for the same fundamental reason that any state-based net neutrality regime will be,” Bloomberg Intelligence analyst Matthew Schettenhelm said. “It raises the possibility that an internet transmission sent across the United States would face changing traffic rules each time it crosses a state line.”

At issue is whether states can adopt the net neutrality policy abandoned by the federal government and force providers to treat all internet communications equally. If states can’t, providers will remain free to prioritize content they own and charge companies like Netflix Inc. extra for so-called fast lanes to reach consumers.

The Federal Communications Commission in late 2017 voted on partisan lines to roll back federal net neutrality rules put in place during the Obama administration. Tech companies including Mozilla Corp., public interest groups and almost two dozen states went to court in the following year to try to block the move.

The D.C. Circuit in October 2019 largely upheld the FCC’s action. The court, however, struck down the FCC’s attempt to ban any state from enacting their own internet protections, ruling that the agency exceeded its authority.

As a result, the FCC can’t automatically preempt net neutrality laws in states that have enacted them, including California, Vermont, and Washington. Opponents instead have to challenge the rules on a case-by-case basis, as Justice and internet service providers are doing in California.

The administration and providers have a persuasive argument that the California law is still preempted by federal law, even though the FCC’s blanket ban was overturned by the D.C. Circuit, said Doug Brake, who directs broadband policy at non-profit Information Technology and Innovation Foundation.

“The DOJ and industry I think pretty clearly have the upper hand,” he said.

The administration and industry have a strong case under the doctrine of conflict preemption, said Daniel Lyons, a professor at Boston College who specializes in telecom and administrative law. Under the doctrine, Justice and providers must only prove that the California law conflicts with the FCC’s federal deregulatory policy toward the internet.

The office of California Attorney General Xavier Becerra (D) didn’t respond to a request for comment. The state has until Wednesday to file a brief in response to the preliminary injunction request.

California’s Law

California’s law reinstates the Obama-era rules that banned internet service providers from blocking, throttling and prioritizing certain internet traffic on their networks.

The law also takes an additional step beyond the Obama-era rules by banning so-called zero rating, a practice in which internet service providers exempt certain content, such as their own, from counting toward a consumer’s data cap.

Justice filed a lawsuit to try to block the law hours after it was signed on September 30, 2018. The industry groups filed a companion challenge a few days later on Oct. 3. The lawsuits had been stayed until the deadline to appeal the D.C. Circuit ruling passed in July.

Despite the challenge, net neutrality proponents argue the state law is on firm legal ground. The FCC can’t preclude states from enacting net neutrality laws unless it’s directed to do so by Congress, they argue.

“The only thing they can’t point to is, ‘Well this FCC, not Congress, decided to articulate a general preference for non-regulation,’” Matt Wood, general counsel at Free Press, a public interest group, said. “That’s not based on any kind of congressional mandate or statement that there should be no regulation in this area.”

California will also argue, as states did successfully in the D.C. Circuit case, that the commission withdrew its authority to regulate the internet when it repealed the Obama-era net neutrality rules.

The state will argue, “Where do you find in the communications act to tell us we can’t do that to protect the citizens of our state?” Andrew Jay Schwartzman, a veteran telecommunications attorney, said. “And there’s a lot of case law that limits what the FCC can do in that area.”

California Defense

If California ultimately prevails, internet service providers would be prevented from pursuing lucrative business practices, and more states would likely pass their own net neutrality laws with less fear of expensive litigation.

That possibility has prompted broadband industry trade groups CTIA, ACA Connects, NCTA and USTelecom, to push for the preliminary injunction. They argue that the California law violates the Communications Act because it regulates broadband, which is an interstate service under the jurisdiction of the FCC, not states.

“This case presents a classic example of unconstitutional state regulation,” the groups said in their argument for the injunction.

Ultimately, courts won’t want to risk the possibility of a patchwork of laws governing internet transmissions that easily transcend state borders, Schettenhelm said.

Such changing rules are “likely to raise serious practical concerns in the minds of many judges,” Schettenhelm said. “Preemption and constitutional doctrines offer them a way out.”

The cases are American Cable Association v. Becerra, E.D. Cal., No. 2:18-cv-02684, Amended complaint filed 8/5/20and USA v. State of California, E.D. Cal., No. 2:18-cv-02660, Amended complaint filed 8/5/20