Industry Lawsuits Against State Net Neutrality Rules Considered ‘Inevitable’

States with laws or executive orders on net neutrality to counter the FCC’s December recision order should expect lawsuits, law experts and others said in interviews. Suits seem more likely to come from industry than the FCC, but industry may wait for the right moment, they said. In two states that passed net neutrality bills, ILEC associations said they won’t sue.

Washington state enacted a law requiring net neutrality, and the Oregon legislature passed a bill to require the state to contract only with ISPs that follow net neutrality principles. California and Hawaii bills appear close to final legislative votes, and many other states also have bills (see 1803070045). Hawaii, Montana, New Jersey, New York and Vermont governors issued executive orders restricting state purchasing. The National Regulatory Research Institute has a map of state actions.

Lawsuits against states are “inevitable,” said Wilkinson Barker utilities attorney Ray Gifford. Northwestern University law professor James Speta predicted “lawsuits against every state that has passed net neutrality rules.” Someone will sue “if they feel it will monetarily benefit them,” said state Sen. Louis DiPalma (D), author of a net neutrality bill in Rhode Island.

Suits will likely come from industry, Speta and Gifford said. “It’s usually not the FCC that’s looking to pick fights in the states,” but it’s also likely nobody in industry wants to be the “first mover” to sue because they work with state governments on tax, universal service and other issues, said Gifford, former Colorado Public Utilities Commission chairman. An FCC spokesman referred us to the pre-emption language on page 117 of the December order but otherwise didn’t comment.

Some Won’t Sue

The Oregon Telecommunications Associations won’t sue the state over its net neutrality law, if signed by Gov. Kate Brown (D), emailed OTA Executive Vice President Brant Wolf. “I do not speak for others such as AT&T or Comcast but the ILEC community will not challenge it,” Wolf said.

Wolf’s members had concerns that the Oregon law wouldn’t apply to middle-mile transport providers, he said. ILECs wondered how they could operate if an ILEC agreed to net neutrality rules, but the middle-mile provider didn’t. “We were told that the state did not intend for that to happen, and “that a small rural community would not in effect be abandoned due to a middle mile provider’s failure to sign the state mandated agreement,” Wolf said. “That answer satisfies us and we are no longer part of the discussion around this effort.”

“While it is both expensive and challenging to manage multiple state-specific regulatory schemes, as compared to one federal plan, we do not plan on filling suit,” Washington Independent Telecommunications Association Executive Director Betty Buckley emailed. “If such an action occurs it would make more sense for that to come from the FCC.” WITA members, including Consolidated Communications and small rural companies, support net neutrality principles, she said.

Washington state cable companies haven't decided on legal action, but that choice will be made at a corporate level by the companies, said Broadband Communications Association of Washington Executive Director Ron Main. BCAW "didn't oppose the underlying principles" expressed in the state law since companies already pledged to abide, but would prefer congressional action because the internet is an interstate service that should be overseen nationally, he said.

USTelecom earlier said it's reviewing legal options. "We simply cannot have 50 different state regulations governing our internet -- consumers expect and demand a single, consistent, common-sense approach," a USTelecom spokeswoman emailed Friday. Congress should enact bipartisan legislation "to make permanent and sustainable rules,” she said. CTIA and NCTA didn’t comment.

Legal Strategy

Industry may wait to sue until a state takes an actual, aggressive regulatory step under its laws or executive orders because that would give the plaintiff “better legal posture” than under a more abstract challenge, Gifford said. He expects the suit would come from a trade association or an industry member that’s “smaller and more sympathetic” than large ISPs, he said. “A Colorado telephone co-op is a more sympathetic plaintiff than one of the big guys.”

"There will likely be some time before we start seeing lawsuits," emailed Danielle Dean, National Conference of State Legislatures policy director-communications and technology. Publication of the FCC order in the Federal Register started the clock on possibly using the Congressional Review Act, but OMB still needs to approve certain provisions before the order is effective, she said.

Nothing is stopping lawsuits from being filed today, but industry “may want to wait until the issue is addressed in the appeal from the FCC's order first,” Speta said. Gifford disagreed, saying state cases may ripen before the federal appeal wraps. A court lottery chose the U.S. 9th Circuit Court of Appeals to hear the federal case, but some parties have asked to transfer it to the D.C. Circuit (see 1803190042).

“State contracting processes are harder to challenge than state laws mandating net neutrality overall,” Speta said. “Federal law usually permits states to make their own purchasing decisions. The big question there will be whether the states can use the contracting process to essentially impose a regulatory requirement, by saying that they will only do business with a company that follows net neutrality for all of its customers.” States “are on relatively safe ground if they say that the services that they will purchase for the state must be neutrally provided, but extending that requirement to other, non-state activities of the carriers will be harder to affirm,” the law professor said.

Gifford agreed broad state net neutrality rules are least likely to survive legal challenge, but industry can also defeat state contract and other narrow approaches, he said. Tapping state purchasing power could work if the state is “careful and subtle,” but Montana’s executive order “was neither careful nor subtle,” he said. This is the “cheap and easy expressive politics stage,” Gifford said. States can’t really believe their own net neutrality regimes will survive legal challenge; rather, state laws and executive orders are ways to signal “solidarity,” he said.

Rhode Island’s DiPalma is working with his governor’s attorneys to ensure his net neutrality bill is legally sound and can survive pre-emption, said the state senator, adding he’s an engineer, not a lawyer. DiPalma expects to get edits from the governor this week, and he will then try to get a hearing in the first two weeks or last week of April, he said. Lawmakers heard a House version last week and held it for further study, a common procedural step in Rhode Island before a final vote, he said. Industry is right that a federal law would be better than 50 state laws, said DiPalma, but states can’t “sit back and wait.”

Net Neutrality Notebook

The Computer & Communications Industry Association filed a motion in the 9th Circuit to intervene in litigation against the FCC's repeal order. “This order MUST NOT AND WILL NOT STAND!," said CEO Ed Black Thursday. "CCIA is committed to ensuring that the Internet will be governed by the principles of net neutrality and open access." Several others have filed to intervene on both sides in County of Santa Clara v. FCC, No. 18-70506 (see 1803220010).