Telecom Decision – Preemption – Internet Trade Groups Seek Ninth Circuit Rehearing on California’s Net-Neutrality Rules

In several states there is an ongoing battle over whether or how states can regulate broadband internet access service in the wake of the D.C. Circuit’s Mozilla v. FCC decision (940 F.3d 1).  The California case is leading the pack, and last Friday the leading internet trade associations asked the Ninth Circuit for rehearing en banc of its decision upholding a California statute, SB-822, that imposes the same “net-neutrality” obligations on broadband providers that the FCC revoked.  ACA Connects v. Bonta, No. 21-15430 (9th Cir. Jan. 28, 2022).

Background.  In 2018, the FCC decided to remove its net-neutrality requirements in order to better promote broadband investment, deployment, and competition, goals toward which federal and state governments today are devoting billions of dollars.  While core policy concerns drove its decision, the FCC removed its net-neutrality rules by reclassifying broadband internet service as an “information service” under Title I of the federal Communications Act rather than a “telecommunications service” under Title II, which freed broadband internet service from common carrier-type regulation (and the prior net-neutrality requirements).

In Mozilla, the D.C. Circuit upheld the FCC’s deregulatory choice, finding the FCC had “lawfully construed an ambiguous statutory phrase in a way that tallies with its policy judgment, as is its prerogative.”  940 F.3d at 26.  On the other hand, the court struck down the FCC’s “Preemptive Directive,” which expressly “preempt[ed] any state or local measures that would effectively impose rules or requirements” that the FCC had “repealed or … refrain[ed] from imposing.”  But, and crucial to the California law, the court also made clear that while the FCC could not expressly preempt the states this way, state regulation of broadband internet service still could be challenged under conflict preemption, and claims of preemptive conflict would have to be addressed case by case.  940 F.3d at 85 (“if “a state practice actually undermines the [FCC’s] 2018 Order, then [the FCC] can invoke conflict preemption”).

Ninth Circuit Decision.  California responded by enacting, under state law SB-822, the very same net-neutrality rules that the FCC, as a matter of nationwide policy, had just revoked.  Several leading internet trade associations sought to enjoin SB-822, but the district court and Ninth Circuit disagreed.  They found that (i) once the FCC reclassified broadband internet service as an “information service” under Title I of the Communications Act, it lost most power to decide how that service should be regulated (or, more importantly here, deregulated), so state-imposed regulation did not conflict with any FCC exercise of federal power; and (ii) broadband internet service is an intrastate service that “touches” on interstate service, and so SB-822 did not conflict with the FCC’s authority over interstate service under 47 U.S.C. 152(b).  See here.

Arguments for Rehearing En BancIn their petition for rehearing en banc, the internet trade associations challenge the Ninth Circuit’s decision on two fronts.

(1) The Ninth Circuit Misunderstood Mozilla.  First, the petitioners argue the panel misunderstood Mozilla when it acted as if the D.C. Circuit held that no state regulation of broadband internet service can ever be preempted.  They emphasize that the dissent in Mozilla read the majority’s decision that way, but the majority responded by saying the dissent misunderstood, and that its ruling that the FCC lacked “authority to expressly preempt” state regulation of broadband was unrelated to “the (potential) implied preemptive effect of the regulatory choices the [FCC] makes that are within its authority.”  Mozilla, 940 F.3d at 85.  In other words, the petitioners argue that (i) Mozilla clearly preserved conflict preemption as a way to challenge state regulation of broadband internet service, but (ii) the Ninth Circuit wrongly adopted the dissent’s view that Mozilla barred any preemption of such regulation, which the Mozilla majority rejected.  And once one accepts the possibility of conflict preemption, the petitioners continue, the conflict is clear:  California adopted the very same net-neutrality rules the FCC revoked for the purpose of promoting federal policy goals; the California law therefore undermines the FCC decision and the policy behind that decision, and stands as an obstacle the FCC’s stated goals, and is conflict-preempted.

(2) The Ninth Circuit Allows State Regulation of Interstate Communications Service.  The petitioners’ second argument for rehearing is that the Ninth Circuit failed to treat broadband internet service as an interstate service subject to the FCC’s plenary jurisdiction.  The FCC, D.C. Circuit, and others have consistently found that broadband internet service is an interstate service for jurisdictional purposes, because it allows a user to reach all internet endpoints across the country and around the world.  The Ninth Circuit, however, characterized broadband internet service as an “intrastate” service that “touches on interstate communications.”  Slip Op. at 30-32.  The panel then said there is no bright line dividing authority over intrastate versus interstate communications, so states can enact regulations that “touch on” interstate services without facing preemption.  Id.  This, the petitioners argue, was an error because broadband internet is undeniably an interstate communications service, and SB-822 directly regulates that service rather than merely “touching on” it.  They also contend that, unlike the cases the panel relied on, SB-822 is not limited to a distinctly intrastate issue (as compared to intrastate depreciation rates in Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355 (1986)); nor is it limited to California users of the internet (like the law in Greater Los Angeles Agency on Deafness, Inc. v. CNN, Inc., 742 F.3d 414 (9th Cir. 2014)); nor is it limited to purely intra-California communications.  SB-822 therefore does not merely “touch on” an interstate communications service, but rather regulates it directly.  Accordingly, petitioners argue, because federal law gives the FCC has plenary authority over interstate communications services, SB-822 is barred by both conflict and field preemption.

What’s next?  Other, similar cases have been put on hold pending the challenge to the California statute (see here), and other state legislatures may have deferred action to await the outcome (see here), so this battle remains the one to watch – although, of course, the FCC might also take action of its own and create a whole new set of issues.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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