DOJ Has Upper Hand Against California Net Neutrality Law, Say Analysts and FCC Backers

DOJ likely will convince the courts to throw out California's new net neutrality law, analysts told us Monday. Attorney General Jeff Sessions and other supporters of the FCC's recent broadband regulation rollback voiced confidence in DOJ's lawsuit, filed in federal court as SB-822 was signed by California Gov. Jerry Brown (D) Sunday. FCC Chairman Ajit Pai, Commissioner Mike O'Rielly and their supporters welcomed the suit, while Commissioner Jessica Rosenworcel and net neutrality advocates criticized it, and industry rivals called for congressional legislation.

Cowen's Paul Gallant believes "DOJ will succeed" in overturning the law as inconsistent with, and pre-empted by, the FCC order undoing net neutrality regulation. "It seems like an uphill case for California as the interstate character of broadband is pretty well established, limiting state net neutrality regulatory power," emailed Paul Glenchur of Hedgeye Potomac Research.

The mandate "can’t survive a pre-emption challenge," said Georgetown Center for Business and Public Policy Project Director Larry Downes, calling the law "little more than a publicity stunt." Stuart Brotman, University of Tennessee media management and law professor, said Justice has a "strong basis" for its challenge. DOJ "will probably win," emailed Doug Brake, Information Technology and Innovation Foundation director-broadband and spectrum policy. "This policy area so clearly needs legislation to establish widely settled net neutrality principles without the baggage of Title II -- anything else is a distraction."

States "do not regulate interstate commerce -- the federal government does," said Sessions as DOJ filed a complaint and memorandum seeking to block the California law (which takes effect Jan. 1) in the U.S. District Court of the Eastern District of California. "The Justice Department should not have to spend valuable time and resources to file this suit today, but we have a duty to defend the prerogatives of the federal government and protect our Constitutional order. We will do so with vigor. We are confident that we will prevail."

"This is no surprise," given favoritism toward "the giant cable and phone companies at the expense of small businesses and the public," emailed Andrew Schwartzman, Georgetown Law Institute for Public Representation senior counselor. "The legal argument for preemption is fatally flawed: the FCC claims that it has no authority to regulate broadband Internet service. Courts have consistently held that when the federal government lacks authority to regulate, it cannot preempt states."

Minutes after the law was signed, "Sessions came out of his cave and sued California," said SB-822 author Sen. Scott Wiener (D) in a statement. "Sessions and his boss Donald Trump aren’t satisfied with the federal government repealing net neutrality. In their world, *no one* is allowed to protect an open internet." Wiener has "complete confidence" California AG Xavier Becerra (D) "will do a great job defending the law." Becerra said: "While the Trump Administration continues to ignore the millions of Americans who voiced strong support for net neutrality rules, California" won't "allow a handful of power brokers to dictate sources for information or the speed at which websites load." Becerra is part of a state and local challenge to FCC pre-emption in the U.S. Court of Appeals for the D.C. Circuit (see 1808210010).

State Trend

California is the fourth state with a net neutrality law after Washington state enacted comprehensive rules, and Oregon and Vermont limited procurement. Montana, New York, New Jersey, Hawaii, Rhode Island and Vermont have executive orders that similarly limit state contracts. The other states have avoided lawsuits. SB-822 is based on the prior FCC's 2015 regulations.

The California law violates the Constitution, the Communications Act and the FCC order reclassifying broadband as a Title I information service, alleged DOJ. It sought "a declaratory judgment that SB-822 is invalid under the Supremacy Clause and is preempted by federal law" and by an "order preliminarily and permanently enjoining enforcement."

Pai called the internet "inherently an interstate information service" subject to exclusive federal policy, as the 8th U.S. Circuit Court of Appeals "recently reaffirmed" in pre-empting state regulation of interconnected VoIP (see 1809070030). Pai cited the new California law's prohibition of "many free-data plans" that are popular, "especially among lower-income Americans." He said he would work with his colleagues and DOJ "to ensure the Internet remains ‘unfettered'" by federal or state regulation.

California’s law "reaffirms its leaders’ total lack of understanding of how technology or our economy actually works, particularly its ban on paid prioritization," O'Rielly said. Rosenworcel praised California's effort "to get right what the FCC got wrong when it wiped out our open internet protections."

ISP Support

The broadband industry will soon join, probably as amici, predicted Electronic Frontier Foundation Legislative Counsel Ernesto Falcon. That opponents of state actions waited until the ninth state to act may show that California’s bill hit a nerve, with its unique zero-rating language particularly egregious to carriers, he said. “This is the thing that prevents AT&T from leveraging its Time Warner assets.” The California-specific lawsuit could be the “test case” before similar actions elsewhere, he said.

Incumbent ISPs and others supported the suit. “Broadband is -- and should continue to be -- regulated at the federal level," said USTelecom CEO Jonathan Spalter. He called for Congress to pass "a national, pro-consumer framework for the entire internet ecosystem.” AT&T and the American Cable Association also backed DOJ and called for a congressional fix. CTIA condemned the California law. Some have expected ISP litigation (see 1809280047).

"California is wasting everyone’s time and taxpayers’ money," said TechFreedom President Berin Szoka. Free State Foundation President Randolph May emailed that he's confident the California law "ultimately will be preempted," though it "may have to be resolved by the Supreme Court." It's "misguided," "anti-competitive," and a "blatant violation" of law, emailed American Enterprise Institute Visiting Scholar Roslyn Layton, who expects "a quick and decisive" DOJ victory. “FCC and DOJ win, and California burnishes its progressive vanity," emailed Wilkinson Barker’s Raymond Gifford, former Colorado Public Utilities Commission chair. Internet Innovation Alliance Honorary Chairman and ex-Rep. Rick Boucher (D-Va.) blogged, "California’s Net Neutrality Adventure: Right Goal, Wrong Path."

Incompas agreed there should be national rules but praised California action. “California is streaming ahead while the rest of the nation remains at risk of an ISP slow lane,” said CEO Chip Pickering. Congress should pass national rules like HR-6393 by Rep. Mike Coffman, R-Colo. (see 1808070017), Pickering said.

The California law "simply fills a gap in consumer protection that the FCC" created, emailed Gigi Sohn, Georgetown Law Institute for Technology Law and Policy fellow. DOJ is arguing "that because the challenge to the [FCC] preemption mandate is before the DC Circuit, the District Court has no choice but to treat [that] order as valid," she said. "That could be a winning argument for a preliminary injunction, but it doesn’t address the larger question of whether the FCC can preempt a state from protecting consumers when [the FCC] has abdicated that role." FCC pre-emption "is hypocritical in the extreme," said Free Press Policy Director Matt Wood, citing general GOP backing for "local self-determination."

State Model

“California is blazing a new path on the state’s ability to regulate the internet as a utility,” said New York Assemblymember Patricia Fahy (D), who sponsored a net neutrality bill restricting state procurement (see 1805310050). “Larger constitutional questions about direct regulation of the net by individual states certainly remain,” Fahy said.

“If Silicon Valley can produce such strong net neutrality protections, other tech-focused states won’t be far behind,” said Massachusetts Senate Majority Leader Cynthia Stone Creem (D). She pushed for a bill in her state this year.

Expect more states to act even amid the suit, said EFF's Falcon: The issue is important to voters of both parties. States could take “different angles of attack than California,” like restricting state procurement, as several other states have done, he said. The National Regulatory Research Institute is “watching Massachusetts and New York to see if there will be any movement on their bills now that the California bill is law,” emailed NRRI Telecom Principal Sherry Lichtenberg.

Other states should follow, said net neutrality supporters including Public Knowledge, Consumers Union, Writers Guild of America West and New America’s Open Technology Institute. Others giving Brown kudos included Demand Progress and the Greenlining Institute. Many supporters urged Congress to kill the December FCC order via the Congressional Review Act procedure.

Sen. Ed Markey, D-Mass., who led the Senate-passed version of the CRA measure, called enactment of the California law “a huge victory,” but “we must continue our efforts, both in the halls of Congress and in the courts” to promote net neutrality. “I strongly encourage my colleagues in the House of Representatives to pass” its CRA version (House Joint Resolution-129), Markey said. That won't happen until the lame-duck session, raising questions about how supporters' argument to court Republicans will change post-election (see 1809210048).

Brown signed some other telecom and internet bills by Sunday's deadline. They included AB-1906, requiring electronics manufacturers to include “reasonable” security measures on IoT and other connected devices; SB-1001, making it unlawful to use bots that mislead Californians into believing they are speaking with a real person; AB-2511 to prevent online sale of guns and other age-restricted items to minors; and AB-2448, requiring that minors in juvenile detention get computer and internet access for education and communication with family.