FCC won’t defend net neutrality, but California will

If the pandemic has taught us anything, it's that high-speed internet is crucial to our daily lives -- and that's unlikely to change in the post-pandemic era. That's one reason federal and state officials are backing bold plans to invest in broadband infrastructure, such as the $7 billion proposal Gov. Gavin Newsom is sending to the California Legislature.

But there's still a big, outstanding question working its way through the courts: Will internet access be provided on fair terms that abide by "net neutrality"?

Right now, Americans have few if any choices for broadband, and that means service providers have enormous power to shape our internet experience by, for example, prioritizing some content or services over others -- including their own. Sprint has slowed down Skype, most mobile providers have slowed down video, and AT&T has even counted competitors' video service against subscribers' data caps while exempting its own. "Net neutrality" means internet providers cannot abuse their power, but must instead carry content and services fairly -- neutrally.

Defending net neutrality used to be the job of the Federal Communications Commission, but it didn't do it very well thanks to its own fundamental error. Under the Telecommunications Act of 1996, a service can be either a "telecommunications service" -- a conduit for data -- or it can be an "information service" -- a provider and curator of data. "Telecommunications services" can be required not to discriminate unfairly. "Information services" not so much. For years, the FCC incorrectly classified broadband access as an "information service." In other words, the agency insisted that broadband internet was more like cable TV than a phone service, where a subscriber is in control of what information they send and request. Anyone who has used the internet in the past couple of decades knows that the FCC was wrong, but the courts deferred to that interpretation.

As a consequence, the FCC bound its hands when it came to net neutrality protections. Essentially, as the D.C. Circuit court explained in 2014, the FCC can't exempt broadband from nondiscrimination requirements by classifying it as an information service, but then impose those requirements anyway. See Verizon Communications Inc. v. FCC, 740 F.3d 623 (D.C. Cir. 2014).

In 2015, the FCC finally did the right thing, reclassified broadband as the telecommunications service it is, and issued sensible net neutrality rules based on firm legal ground. But in 2018, under new leadership and heavy pressure from ISPs, the FCC reversed course, reclassified broadband as an "information service" once again, and largely abandoned the net neutrality rules it had enacted in favor of a limited transparency requirement.

California responded with Senate Bill 822, a law that does what the FCC would not: bar internet service providers from blocking and throttling internet content and imposing paid prioritization schemes. To no one's surprise, major ISPs immediately ran to court to try to block the law. Ruling from the bench, Judge John Mendez refused, sending the case up to the 9th U.S. Circuit Court of Appeals.

The ISPs' legal case boils down to this idea: Under the Communications Act, net neutrality regulation is the province of the federal government, and its choices preempt all others. In other words, the FCC gets to regulate or deregulate as it chooses in this area, and the states are powerless to fill any gaps. The ISPs and their supporters also insist that there's no need for states to do more -- the market will ensure that consumers are treated fairly.

But the ISPs have two fundamental problems at this stage.

First, the D.C. Circuit has already rejected the FCC's effort to expressly preempt state regulation in this space. So the ISPs need to show that they are likely to succeed on an implied preemption theory, i.e., that SB 822 conflicts with federal law or that the FCC has "occupied the field" such that states cannot step in.

The district court rejected that theory, and the 9th Circuit is likely to do the same. The preemption analysis starts with a thumb on the scale in favor of the state's ability to exercise its traditional police powers to protect the consumer rights, health and safety of its residents. To overcome that, the ISPs have to show that Congress intended to block those powers -- here, that the FCC has exclusive statutory authority to issue net neutrality rules. But the FCC deprived itself of that authority when it reclassified ISPs as information services. The ISPs also suggest that California's net neutrality rules conflict with the FCC's transparency rule, but that argument fails because ISPs can easily comply with both. In short, have reclassified broadband and thereby limited its own ability to regulate, the FCC also limited its ability to prevent others from regulating.

Second, the ISPs are seeking a preliminary injunction, so they have to show not only likelihood of success on the merits, but also that an injunction would serve the public interest. And that is a massive barrier, even if/when the pandemic is over. For example: without legal protections, low-income Californians who rely on mobile devices for internet access and can't pay for more expensive content will likely face limits on that access, even though it's critical for distance learning, maintaining small businesses, and staying connected. Schools and libraries are also justifiably concerned that without net neutrality protections, paid prioritization schemes will degrade access to material that students and public need in order to learn. SB 822 addresses that by ensuring that large ISPs do not take advantage of their stranglehold on Californians' internet access to slow or otherwise manipulate internet traffic.

More broadly, the large ISPs have a vested interest in shaping internet use to favor their own subsidiaries and business partners, at the expense of diverse voices and innovation. Absent meaningful competition, ISPs can and do leverage their monopolies to customers' homes and bypass competition for a range of online services. That would mean less choice, lower quality, and higher prices for users -- and new barriers to entry for innovators.

The 9th Circuit should recognize the flaws in the ISPs case and, if so, it's ruling will be hugely consequential for users around the nation -- California is not the only state interested in regulating in this space. ISPs would prefer one uniform (weak) rule; users need more. If the feds won't protect net neutrality the states can, and should. 