Murthy Provides a Teachable Moment About the “Vast Power” of the Administrative State

Digital platforms, as private entities, enjoy First Amendment protection. Indeed, the Supreme Court said last term in Moody v. NetChoice that the First Amendment “does not go on leave when social media are involved.” As the Court observed, “[o]n the spectrum of dangers to free expression, there are few greater than allowing the government to change the speech of private actors in order to achieve its own conception of speech nirvana.”

But efforts to regulate how digital platforms moderate content continue, often bolstered by conservatives who accuse the platforms of political bias against their views. One theory (among others) that some seek to use to get around the First Amendment is that digital platforms are, in fact, “state actors,” because the government either “compel[led] the private entity to take a particular action” or the “the government act[ed] jointly with the private entity.”  This argument also had its day at the Supreme Court last term in the case of Murthy v. Missouri.

At issue in Murthy was the government’s pressure on digital platforms during the Covid-19 pandemic to combat what the Biden Administration perceived as the spread of “misinformation.” To some, this jawboning proved that digital platforms were “colluding” with the government to moderate content, thus triggering the state actor doctrine. The Court, however, refused to address the merits, choosing instead to side-step the issue entirely. Despite a “sprawling” record of government threats to digital platforms’ business models, the Court dismissed the suit on standing grounds. Why? Because it was not the digital platforms who complained about the government’s jawboning; the petitioners in Murthy were third parties to the alleged government abuse—two states and five individual social media users.

The petitioners in Murthy argued that by coordinating with digital platforms, the government violated their First Amendment “right to listen” to the content of other speakers on social media. The Court rejected this theory as “startling broad,” ruling that accepting this argument would “grant all social media users the right to sue over someone else’s censorship—so long as they claim an interest in that person’s speech.” According to the Court, while it has recognized a “First Amendment right to ‘receive information and ideas,” a prospective plaintiff must demonstrate a “cognizable injury . . . where the listener has a concrete, specific connection to the speaker.” And in this particular case, the Court found that neither the states nor the individual social media users successfully demonstrated an injury that was “sufficiently ‘concrete and particularized.’”

The dissent was incredulous. It argued that while the Biden Administration’s jawboning of digital platforms was “subtle” (as opposed to “ham-handed”), the government’s actions were still “coercive,” “dangerous,” and “unconstitutional.” Thus, argued the dissent, if a “coercive campaign is carried out with enough sophistication, it may get by. But that is not a message this Court should send.”

Which brings us to another major free speech case the Supreme Court decided last term: NRA of America v. Vullo. In Vullo, the government pressured insurance providers to stop underwriting firearm personal liability and criminal defense policies offered by the National Rifle Association to its members. The NRA sued, arguing that the government’s conduct was clearly designed to punish the NRA for its Second Amendment advocacy.  The Court agreed. In a unanimous opinion authored by Justice Sotomayor, the Court reaffirmed the fundamental principle that “[g]overnment officials cannot attempt to coerce private parties in order to punish or suppress views that the government disfavors.” And when the government does engage in such conduct, the Court held, aggrieved parties have standing to sue the government for violating their First Amendment rights. The Court thus found no standing problem in Vullo: unlike the tertiary petitioners in Murthy, the petitioner in Vullo was the intended target of the government’s censorship efforts.

The procedural posture of Murthy thus raises an interesting—yet so far unanswered— question: If the Biden Administration’s jawboning of digital platforms’ content moderation policies was so pervasive, then why didn’t the digital platforms themselves sue the government for violating their First Amendment rights? Under Vullo, they certainly had the standing to do so and, depending on how they pled their case, Vullo suggests they might have even succeeded on the merits. Equally important to the platforms, such a suit would have sent a clear political message to “Big Tech” critics that digital platforms were not in collusion with the government, but rather were victims of its coercion.

While the ultimate answer to this question lies in the privileged conversations between the assorted digital platforms and their respective legal counsel, a reasonable reading of the tea leaves is that digital platforms decided not to complain because it was just too hard to fight City Hall.

And can you really blame them?

Reading the opinion dispassionately, Murthy is not so much a case about either standing or the First Amendment. Rather, Murthy provides a teachable moment about the power of the administrative state.

As Chief Judge Roberts has astutely noted, the federal bureaucracy “wields vast power and touches almost every aspect of daily life.” This power includes both direct ex ante regulation (e.g., compliance with the tax code, securities laws, the Affordable Care Act) as well as ex post enforcement of the antitrust laws by the Department of Justice or Federal Trade Commission. Moreover, given the billions of dollars in subsidies and tax credits sloshing around from recent laws such as the American Rescue Plan Act of 2021, the Inflation Reduction Act of 2022, and the CHIPS and Science Act of 2022, many firms want to stay on the government’s good side to ensure they get a slice of that pie to bolster their bottom lines.

But firms are not passive recipients of regulation. Given the “vast power” of the administrative state, regulation inevitably boils down to some sort of bi-lateral bargain between the regulator and the regulated. As Judge Frank Easterbrook observed forty years ago:

Often an agency with the power to deny an application (say, a request to commence service) or to delay the grant of the application will grant approval only if the regulated firm agrees to conditions. The agency may use this power to obtain adherence to rules that it could not require by invoking statutory authority. The conditioning power is limited, of course, by private responses to the ultimatums—firms will not agree to conditions more onerous than the losses they would suffer from the agency’s pursuit of the options expressly granted by the statute. The firm will accept the conditions only when they make both it and the agency (representing the public or some other constituency) better off. Still, though, the agency’s options often are potent, and the grant of application on condition may greatly increase the span of the agency’s control.

In fact, the government’s expectation of a vig in exchange for regulatory favors is now unfortunately commonplace and surprisingly explicit. The problem, of course, is that as regulation increasingly becomes a transactional bi-lateral bargain between the regulator and the regulated, precedent becomes increasingly irrelevant and, by extension, policy outcomes become increasingly unpredictable.

For those who deal with any of the myriad of ABC regulatory agencies in Washington, DC, on a regular basis, the notion that the government will dangle its vast power over the private sector like a Sword of Damocles should not come as a particularly novel revelation. Indeed, unlike civil litigation—where the parties fight like cats and dogs only to disperse to the four winds after resolution—a regulatory practice is more like a bad family picnic: you see the same people over and over again, often fighting over the same issues (sometimes for years). Expecting this dynamic to change in any significant manner is simply naïve.

Still, it may be possible to mitigate some of the rougher edges of the administrative state’s asymmetric bargaining power over the private sector.

A welcome contribution can be found in the Supreme Court’s recent decisions in West Virginia v. EPA, where it revitalized the major questions doctrine, and in Loper Bright Enterprises v. Raimondo, where the Court repealed Chevron. Both cases were significant steps toward forcing administrative agencies to stay in their proverbial lanes.

But Congress also has a role to play.

For one, Congress could use its power of the purse. Economic research reveals that a ten percent reduction in the regulatory budget—or about $5.6 billion—would produce an additional $1.2 trillion in GDP over the next five years, or $244 billion annually; that means a $45 GDP gain for every $1 decline in the regulatory budget. That ten percent reduction in the regulatory budget—which implies a return to pre-Obama Administration levels—would also lead to the creation of three million new private-sector jobs annually. A resource-restrained regulator would be forced to focus on important policy issues rather than pursue marginal interventions that impose high costs but offer few benefits.

Congress could also work to constrain the administrative state’s power via legislation. Yet while some in Congress talk about deregulation, over the last several years an assortment of bi-partisan legislative efforts have sought to expand—not limit—the power of the administrative state, particularly in the technology sector. Examples include both the American Innovation and Choice Online Act (AICOA) and the Kids Online Safety Act (KOSA). Worse, Congress now has no compunction to pass laws which strip the private sector of its ability to seek meaningful judicial review of agency actions under the Administrative Procedure Act (APA) for arbitrary and capricious decision making. (See, e.g., the Infrastructure Investment and Jobs Act of 2021, which directs that courts must presume the National Telecommunications and Information Administration’s implementation of the $42.5 Broadband Equity, Access, and Deployment (BEAD) Program lawful; parties may only appeal by demonstrating “corruption” or “any other misbehavior” by the NTIA—a very limited and extremely high standard to satisfy.)

During the Covid pandemic—a time of great confusion and fear—people made the best decisions they could based upon the preliminary information available, even if those decisions ultimately proved incorrect. But as the Supreme Court noted in Roman Catholic Diocese v. Cuomo, even if the Constitution took “a holiday during this pandemic, it cannot become a sabbatical.” Thus, there is a distinct difference between “cooperation” with and “coercion” by the government. Both Murthy and Vullo instruct that the government—with its “vast power”—cannot abuse a private actor’s patriotic goodwill, particularly when it comes to the First Amendment.

Barring wholesale reforms to constrain the “vast power” of the administrative state, firms will have to continue to bargain with the government to achieve regulatory relief. While individual firms will have to exercise their own business judgement in determining whether to fight City Hall, the rest of us can be more vocal whenever the government engages in jawboning to ensure that sunshine remains the best disinfectant.