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California's Attempt at Net Neutrality Clearly Unconstitutional

On September 30, California Governor Jerry Brown signed into law SB-822, a set of regulations on Internet service providers that’s slated to go into effect at the beginning of 2019. Often referred to as a “net neutrality” bill, SB-822 aims to impose on Internet providers several sweeping mandates derived from a regulation issued by the Federal Communications Commission in 2015.

Like the FCC’s 2015 regulation, SB-822 bars ISPs from blocking, throttling, or prioritizing certain types of Internet traffic. In some ways, SB-822 goes further than the FCC did in 2015, banning the practice of zero rating—which entails providers exempting certain content from their users’ data usage allowance. Also unlike the FCC’s 2015 rules, the California law restricts Internet providers from charging companies at the “edge” of the Internet—such as Netflix and Amazon—for delivering their traffic to end users.

We at the Competitive Enterprise Institute have long been skeptical of so-called net neutrality regulation, as we’ve told the FCC on numerous occasions. In early 2018, the agency listened, issuing the Restoring Internet Freedom order, in which the FCC reversed its 2015 rules—citing, among other things, CEI’s comments as evidence that deregulation was in order.  California’s new law is expressly intended to nullify the FCC’s deregulatory action, harnessing the state’s wide reach over large Internet companies in hopes of bringing back from the dead the heavy-handed regime that the FCC recently abandoned.

Since Governor Brown signed SB-822, the U.S. Department of Justice and a group of broadband trade associations have each filed lawsuits against California and its attorney general, asking the federal court based in Sacramento to block the state from enforcing its net neutrality law. The plaintiffs argue that SB-822 conflicts with federal law and the U.S. Constitution, and should therefore be set aside as unlawful. They’re right.

In particular, when Congress enacted the Telecommunications Act of 1996, it enshrined in law that the federal policy of the United States is to “preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.” Accordingly, the FCC—aside from a three-year departure from this principle between 2015 and 2018—has otherwise maintained that Internet service providers are not common carriers and, as such, aren’t required to carry whatever traffic the government decrees is mandatory.

California’s new law is in obvious conflict with this principle, and with the FCC’s 2018 Restoring Internet Freedom order. Under the Constitution’s Supremacy Clause, a validly enacted federal law trumps a state law that conflicts with it. Given that Internet access is fundamentally interstate in nature, with a huge portion of Internet traffic crossing state and even national boundaries, it’s well within Congress’s power to regulate interstate commerce to establish a uniform national policy governing Internet service providers. And, indeed, Congress did just that by establishing a policy of deregulation in the 1996 Act.

The FCC, consistent with Congress’s desire, has wisely articulated a policy whereby providers are free to decide for themselves whether to carry a particular type of Internet traffic, and on what terms. California lawmakers may prefer a heavier-handed approach to the matter, but the state cannot assert its will over the federal government’s.

There’s another problem with SB-822: it violates the Constitution’s “dormant” commerce clause. Under this principle of constitutional law, a state regulation is unlawful if it burdens the flow of interstate commerce in excess to the purportedly local benefit. Although California’s law does not apply to all Internet traffic throughout the United States, given how much traffic passes through the state—and how many major Internet providers have California-based operations—the law would, if implemented, have nationwide effects on the market for Internet service. SB-822 could become the de facto national standard for Internet providers, much like how California’s regulation of automobile emissions has effectively set the bar for cars manufactured for sale in the United States.

Hopefully, the U.S. District Court for the Eastern District of California blocks SB-822 from going into effect in January. This would mark a victory for consumers and set an important precedent affirming the FCC’s deregulation of Internet access.