United States: Telecom Preemption – Ninth Circuit Upholds California Net-Neutrality Law

The Ninth Circuit Court of Appeals has issued a much-anticipated decision on California's state "net-neutrality" law, which reimposes the net-neutrality requirements the FCC removed back in 2018. ACA Connects v. Bonta, No. 21-15430 (9th Cir., Jan. 28, 20222). The California law is viewed as a template for other states interested in that sort of legislation, and this case served as the lead trial balloon as industry associations challenged the statute on preemption grounds.

As quick background, in 2015 the FCC established net-neutrality rules that prohibited broadband internet service providers from blocking access to websites, slowing certain customers' internet access ("throttling"), or prioritizing access to some websites over others. But in 2018 the FCC reversed itself and removed those rules (relying instead on a "transparency" requirement) 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 of that Act. The purpose in switching to Title I was to subject broadband internet service to only the light-touch regulation that applies to Title I services. The FCC also expressly preempted state laws that were inconsistent with its deregulatory approach, or that would effectively reimpose the net-neutrality rules it repealed. The D.C. Circuit upheld the FCC's reclassification of broadband internet service in 2019, but overturned the express preemption mandate. Mozilla v. FCC, 940 F.3d 1 (D.C. Cir. 2019). It left open the question whether, after the FCC's decision, state net-neutrality requirements could be defeated by other types of preemption.

Several communications industry associations challenged the California law as being barred by both conflict and field preemption. They first contended that reimposing, under state law, the very requirements the FCC deliberately removed in order to promote broadband service directly conflicted with and undermined the FCC's goals and policy choice, and therefore could not stand. The Ninth Circuit disagreed, writing that "an absence of federal regulation may preempt state law only if the federal agency has the statutory authority to regulate in the first place." Slip op. at 18. Here, the court said, the FCC had not been exercising federal statutory authority because, once the FCC reclassified broadband internet service as falling under Title I it lost the power to dictate how that Title I service should (or should not) be regulated. In other words, even though the FCC's purpose in reclassifying broadband internet as a Title I service was to minimize regulation, once the FCC reclassified the service to Title I it "gave up its full regulatory authority" to determine the level of regulation for that service. Slip op. at 19. Thus, the reclassification had the perverse effect of exposing broadband internet service to the very kind of regulation – via the states – the FCC sought to avoid. The Ninth Circuit explained that while a federal agency's decision not to regulate (or to lightly regulate) an area can have preemptive effect, as in Ray v. Atlantic Richfield Co., 435 U.S. 151, 178 (1978), that decision must involve the agency foregoing federal regulatory power it actually possesses, whereas in this case the FCC sought to forego federal regulatory power that, once the service was moved to Title I, it no longer possessed. The court also relied on past decisions finding the FCC could not impose net-neutrality requirements if broadband service is classified under Title I, which it said buttressed its view of the FCC's lack of authority to dictate treatment of a Title I service,

Turning to field preemption, the industry associations argued that broadband internet service is an interstate service, that the Communications Act gives the FCC exclusive authority over interstate services under 47 U.S.C. 152, and therefore federal law occupies the field and preempts any state regulation of broadband internet service. The Ninth Circuit again disagreed. Focusing on the Supreme Court's landmark decision in Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355 (1986), the court said there is not a clean divide between interstate and intrastate communications services, and so the FCC cannot be said to have exclusive, field-covering authority over every aspect of an interstate service. Rather, states can supplement the federal scheme in various ways, because the "Communications Act itself reflects a scheme that leaves room for state regulation that may touch on interstate services." Slip op. at 33. The court also relied on the language in the California law limiting it to internet access service "provided to customers in California." The Ninth Circuit had held in Greater Los Angeles Agency on Deafness, Inc. v, Cable News Network, Inc., 742 F.3d 414, 433 (9th Cir. 2014) that such a limitation ensures that a "state regulation of internet services does not have the practical effect of regulating wholly interstate conduct," and the same principle applied here. Slip op. at 30.

What's next? Some speculate this decision will embolden other states to proceed with their own net-neutrality laws. It also remains to be seen whether trade associations might seek Supreme Court review, or, instead, pursue their arguments elsewhere and see whether a circuit split develops (a New York federal district court held New York's net-neutrality law was both conflict- and field-preempted last year (New York State Telecomms. Ass'n v. James, No. 21-cv-02389 (E.D.N.Y., June 11, 2021), but the state withdrew its appeal, and a case on Vermont's similar law has been stayed pending the Ninth Circuit decision). Of course, it also remain to be seen what the FCC, with new membership under a new administration with different views toward internet regulation, may do, and how that might affect states' attempt to regulate broadband internet access service.

If you have any question about this case or other telecommunications issues, please contact J. Tyson Covey or Brian McAleenan of the Duane Morris Technology, Media and Telecom practice.