Preemption of State Broadband Regulation – New York and California Federal Courts Diverge

How a communications service is classified has a critical impact on how (or whether) it can be regulated.  That has been a critical issue with respect to internet access service, where the FCC has vacillated between defining it as a “telecommunications service” (and thus potentially subjecting it to common carrier regulation under Title II of the federal Communications Act) or as an “information service” (thus subjecting it to very limited potential FCC regulation under Title I of that Act).  After classifying broadband internet access service (BIAS) as a “telecommunications service” in 2015 and imposing “net neutrality” requirements in BIAS providers, the FCC changed course in 2018 and removed those rules, finding they were detrimental to broadband investment, innovation, and availability and that BIAS should instead be classified as an “information service.  Many states then considered how to react to the FCC’s 2018 Order.  Some considered new statutes that ultimately did not pass, some directed agencies to look into the topic and report back, some used executive orders to require broadband providers contracting with the state to follow net neutrality principles, and some passed specific statutes.

The two most far-reaching statutes, from California and New York, have been challenged in federal court by industry associations arguing both field preemption and conflict preemption.  The California court denied a preliminary injunction of the law there (SB-822), which reimposed the same net neutrality requirements the FCC removed in 2018.  American Cable Ass’n v. Becerra, No. 18-cv-2684 (E.D. Cal., Feb. 23, 2021) (oral ruling).  That decision is on appeal at the Ninth Circuit, where it has been fully briefed (No. 21-15430).  Meanwhile, last Friday the New York court granted a preliminary injunction against a New York law (referred to as the ABA) that requires BIAS providers to offer a $15 broadband internet service plan to qualifying low-income customers.  New York State Telecomms. Ass’n v. James, No. 21-cv-02389 (E.D.N.Y., June 11, 2021).  That ruling may well be taken up to the Second Circuit.  Although the two states’ laws are different, there is extensive overlap in the arguments in the cases, and it is interesting to compare how differently the two courts addressed them.

Field Preemption.  BIAS is an interstate service, as it provides users with access to all internet endpoints, which could be anywhere in the world.  In both California and New York, the industry associations argued that 47 U.S.C. § 152(a) gives the FCC exclusive jurisdiction to regulate the provision of interstate communications services, and that this exclusive jurisdiction preempts states from regulating in that field.  They also relied on caselaw stating that the FCC has exclusive or plenary authority over interstate communication services, and distinguishing that from the power left to the states over intrastate communications services.  California and New York responded by arguing that Section 152(a) merely discusses FCC authority to regulate interstate services, without clearly excluding the states.  They also contended that the federal Communications Act excludes some interstate communications services, such as information services, from FCC authority, and argued that this means Congress did not give the FCC exclusive power in the field of interstate communications services.

The California court found no field preemption of SB-822, agreeing that although 47 U.S.C. § 152 discussed FCC power over interstate services, it did not clearly preclude state regulation in that area.  The court also stated that federal law “specifically left out certain types of information services from the FCC’s jurisdiction, like information services,” and therefore did not create the kind of “pervasive regulatory system that left no room for state law[.]”

The New York court reached the opposite result, holding there was field preemption.  It relied primarily on caselaw stating that the FCC has complete authority over the regulation of interstate communications services.  This included a Second Circuit decision, Ivy Broadcasting Co. v. AT&T Co., 391 F.2d 486, 490-91 (2d Cir. 1968), which the court said it was not authorized to ignore, as well as the Supreme Court’s decision in Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 360 (1986).  That case described the FCC’s authority over interstate communications services as “plenary,” and the New York court observed that the FCC’s jurisdiction could hardly be “plenary” if, by classifying an interstate communications service as falling under Title I of the Communications Act, it thereby exposed that service to regulation by the 50 states.  In this regard, the New York court asserted that the California court had it “backwards” because, contrary to the California court’s view, the federal Communications Act did not leave certain interstate services, such as interstate information services, outside the FCC’s authority.  Rather, the Communications Act limits the type of authority the FCC can exercise over such services (e.g., the FCC cannot subject them to the common-carrier obligations of Title II), it does not remove the FCC as the exclusive regulator of all interstate communications services – including information services.

The differences between the two courts on field preemption are stark.  One difference is that the California decision involves no discussion of caselaw or the history of FCC authority over interstate services, and also assumes the FCC has no authority over Title I service, rather than merely having limited authority.  In addition, the New York court was bound by the Second Circuit’s Ivy Broadcasting decision, while the California court did not address any similar Ninth Circuit cases.  The California court seemed to think there needed to be explicit declaration by Congress that the states cannot regulate interstate communications services – in other words, it appeared to be looking for express preemption (i.e., an explicit declaration of preemption in a federal statute) rather than field preemption (which is a form of implied preemption).

Conflict preemption.  In both cases the conflict preemption question was whether, by regulating BIAS (albeit in different ways), the California and New York laws undermined the FCC’s 2018 decision to classify BIAS as an information service subject only to Title I of the Communications Act (and thus not subject to common carrier regulation).  The two courts’ different results stem from their different characterizations of the FCC’s decision.

The California court asserted that despite the FCC’s stated reasons for its decision – which was designed to exempt BIAS from common carrier-type regulation in order to better serve Congress’s goals – the FCC’s 2018 order was “not an instance of affirmative deregulation, but, rather, a decision by the FCC that it lacked authority to regulate in the first place.”  In other words, the California court viewed the FCC’s only “role” as one of mere technical classification of BIAS based on “the factual particulars of how Internet technology works and how it is provided.”  Given this limited, technical role, the court decided, the “deregulatory purpose” behind the FCC’s classification was irrelevant.  Rather, the court believed, once the FCC classified BIAS as a Title I information service, BIAS fell completely outside the FCC’s jurisdiction.  That, in turn, meant BIAS could be regulated by each of the 50 states without conflicting with federal law or policy, because a federal agency cannot preempt states in an area where the agency has no power to regulate.  (Whether the FCC retains power over Title I services will be addressed at the Ninth Circuit.)

The New York court again reached the opposite result, because it saw the FCC’s 2018 decision much differently.  In its view, the FCC did not simply classify BIAS as a Title I information service based on technical characteristics.  Rather, it said, the FCC’s classification choice was the result of “an affirmative decision not to treat” BIAS providers as common carriers (i.e., in order to protect them from common carrier regulation under Title II regulation).  While the effect of this decision was to reduce the FCC’s authority, the court found that the FCC’s “affirmative decision” to classify BIAS in a way that reduced how it could be regulated was “different from an abdication of jurisdiction writ large[.]”  Thus, the FCC’s classification decision “did not tender jurisdiction to the States to regulate interstate broadband providers as common carriers.”  Rather, the FCC simply “b[ound] itself it the confines of Title I jurisdiction,” and, importantly, did so based on its policy choice that treating BIAS as an information service subject to Title I would best serve the FCC’s and Congress’s goals of promoting investment, innovation, and availability of BIAS services.  The rate regulation required by the New York statute, a textbook form of common carrier regulation, would “directly contravene[]” the FCC’s purposes and objectives by imposing the very type of regulation the FCC consciously sought to avoid.  In addition, any other view would require the court to assume the FCC unknowingly shot itself in the foot, because the alleged effect of the FCC’s classification decision would be to open BIAS to common carrier-type regulation by 50 states, even though that is exactly what the classification decision was intended to prevent.

As with field preemption, the difference between the conflict preemption analyses of the California and New York courts is stark.  In particular, they view the consequences of classifying BIAS as a Title I information service, and the significance of the FCC’s purpose and rationale, very differently.  While the California decision may have boosted the spirits of those favoring state net neutrality laws, the New York decision, with its more detailed analysis grounded in caselaw, certainly shifts things the other way.  It remains to be seen whether the Ninth and Second Circuits will resolve this split – or whether Congress or the FCC will try to step in and create (yet another) national BIAS framework.

If you have questions about this post or other telecommunications issues, please contact J. Tyson Covey or Brian McAleenan of the Duane Morris Technology, Media, and Telecom group.