Federal Preemption, the Dormant Commerce Clause, and State Regulation of Broadband: Why State Attempts to Impose Net Neutrality Obligations on Internet Service Providers Will Likely Fail

105 Pages Posted: 8 Aug 2018 Last revised: 2 Nov 2018

Date Written: July 19, 2018

Abstract

In 2017, the Federal Communications Commission (“FCC”) voted to repeal the 2015 Open Internet Order (“2015 Order”)—which reclassified broadband Internet service providers (“ISPs”) as common carriers and imposed “net neutrality” regulations upon them. The Restoring Internet Freedom Order (“RIFO”) reinstated the FCC’s previous light-tough approach. Twenty-one states quickly announced plans to challenge the RIFO in court. Such suits will inevitably fail: In 2005, the Supreme Court deferred to the FCC’s 2002 ruling that cable modem broadband was not a “telecommunications service,” and hence not a common carrier service under Title II of the Communications Act of 1934 (“1934 Act”).

Nearly thirty states have—whether through legislation or executive orders—also attempted to reimpose the 2015 Order’s net neutrality obligations on ISPs, either by (1) directly imposing net neutrality requirements on ISPs by recreating a version of the 2015 Order at the state level, or (2) conditioning an ISP’s ability to do business with, or within, the state, on the ISP’s state-wide adherence to certain net neutrality principles with regard to all customers. Both forms of state regulation are likely unconstitutional, for two broad reasons:

1. Federal Preemption: The “Supremacy Clause” of the Constitution makes the “laws of the United States … the supreme law of the land.” Ingrained in the Supremacy Clause is the doctrine of federal preemption, which authorizes the federal government to deprive states and localities from regulating in certain contexts whether or not the state or local regulation conflicts with federal law. Interpreting the Communications Act, the FCC’s RIFO sets forth “a calibrated federal regulatory regime based on the pro-competitive, deregulatory goals of the 1996 [Telecommunications] Act,” and makes clear that broadband service should be governed “by a uniform set of federal regulations, rather than by a patchwork that includes separate state and local requirements.” Accordingly, the RIFO “preempt[s] any state or local measures that would effectively impose rules or requirements that we have repealed or decided to refrain from imposing in this order or that would impose more stringent requirements for any aspects of broadband service that we address in this order.”

2. Commerce Clause: The Internet—described by the Supreme Court in 1997 as a “wholly new medium of worldwide human communication” and defined by the 2015 OIO as “jurisdictionally interstate for regulatory purposes” —naturally extends beyond the boundaries of any state. As such, the effects of any state Internet regulation must extend beyond state borders, thus implicating the “Dormant Commerce Clause.” This doctrine limits the states’ ability to institute regulations that act as barriers to interstate commerce; it may even limit how the states may act within their traditional police powers to protect public health and safety, or to protect their citizens from unfair or deceptive trade practices.

The Communications Act of 1934 authorized the FCC to make any regulation necessary to establish and maintain a uniform, regulatory environment for interstate communications. The Telecommunications Act of 1996 required the FCC to undertake any measure necessary, “to preserve the vibrant and competitive free market that presently exists for the Internet … unfettered by Federal or State regulation.” In accordance with the 1996 Act’s pro-competition, deregulatory purpose, the RIFO declares that broadband should be governed by a “uniform set of federal regulations, rather than by a patchwork that includes separate state and local requirements.” To ensure this uniformity, the FCC issued the above express preemption statement, preempting “any so-called ‘economic’ or ‘public utility-type’ regulations, including common-carriage requirements.”

The FCC’s establishment of a uniform deregulatory framework and clear preemption statement renders the states’ net neutrality requirements void ab initio. The Supreme Court held long ago that “the statutorily authorized regulations of an agency will preempt any state or local law that conflicts with such regulations or frustrates the purposes thereof.” Thus, though Congress’ intent remains the critical question, “[f]ederal regulations have no less preemptive effect than federal statutes.” That the RIFO adopted a federal policy of deregulation, in no way undermines that Order’s preemptive force, as the Court has stated that a federal determination that a policy be left “unregulated” carries “as much preemptive force as a decision to regulate.”

Further, while states acting as “market participants” in a purely propriety manner, are “not subject to preemption,” attempts by states to use their spending power to regulate areas where Congress or a federal agency has preempted them from doing so are nonetheless preempted, because the “government occupies a unique position of power in our society, and its conduct, regardless of form, is rightly subject to special restraints.” In other words, “it is far from unusual for federal law to prohibit States from making spending decisions in ways that are permissible for private parties.” Thus, masking a regulation as an operation of a state’s spending power will not shield the action from federal preemption, because “[i]t is the conduct being regulated, not the formal description of governing legal standards, that is the proper focus of concern.”

Finally, the states’ actions also violate the Dormant Commerce Clause, which bars state regulation if the regulated activities “inherently require a uniform system of regulation” or if the regulations “impair the free flow of materials and products across state borders.” As the RIFO declares, “it is impossible or impracticable for ISPs to distinguish between intrastate and interstate communications over the Internet or to apply different rules in each circumstance.” As such, these state measures necessarily reach beyond state borders. While multijurisdictional regulation—both vertically between Federal and state governments and horizontally among the states—is not unique to regulation of the Internet, the Internet’s uniquely global nature and the FCC’s express preemption statement will render the states’ efforts to impose net neutrality obligations on ISPs invalid upon judicial review.

Suggested Citation

Owens, Graham, Federal Preemption, the Dormant Commerce Clause, and State Regulation of Broadband: Why State Attempts to Impose Net Neutrality Obligations on Internet Service Providers Will Likely Fail (July 19, 2018). Available at SSRN: https://ssrn.com/abstract=3216665 or http://dx.doi.org/10.2139/ssrn.3216665

Graham Owens (Contact Author)

TechFreedom ( email )

1899 L ST NW
12th Floor
Washington, DC 20036
United States

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