Deep Dive Episode 34 – Net Neutrality and Federalism

[Music and Narration]

 

Operator:  This is Free Lunch, the podcast of The Federalist Society's Regulatory Transparency Project. All expressions of opinion on this podcast are those of the speakers.

 

Devon Westhill:  Good afternoon and welcome to another episode of The Federalist Society Free Lunch Podcast for the Regulatory Transparency Project. Join our conversation about were government regulation might be improved by visiting the RTP website at RegProject.org, R-E-G Project.org. There you can subscribe to our biweekly newsletter, also consider following the RTP on Facebook, Twitter, and LinkedIn. I'm Devon Westhill. I'm the Director of the RTP and the host of Free Lunch Podcast.

 

            In this podcast, the 33rd episode, we revisit a subject that we covered in our 14th episode so-called net neutrality. Notwithstanding the FCC's December 27th decision to eliminate the common carry regulations for internet services created in 2015, the net neutrality debate rages on, particularly in the States. The state level push raises among other issues which you'll hear about today, whether the FCC's decision preempted state's authority to regulate the internet.

 

            I'm pleased to say that we have three excellent speakers joining us today to finally solve all of the net neutrality issues for good. And with that completely reasonable bar set, let me briefly introduce our guests.

 

            Geoffrey A. Manne is our moderator for today. Geoff is the Founder and Executive Director of International Center for Law & Economics—a non-profit, non-partisan research center based in Portland, Oregon. He's also a distinguished Fellow at Northwestern Law Suril Center on Law, Regulation, and Economic Growth. In April 2017, Geoff was appointed by FCC Chairman Ajit Pai to the FCC's Broadband Deployment Advisory Committee and he recently served for two years on the FCC's Consumer Advisory Committee.

 

            Our two panelists are Brent Skorup and Gus Hurwitz. Brent is a Senior Research Fellow at the Tech Policy Program at the Mercatus Center at George Mason University. His research topics include wireless policy, new media regulation, telecommunications, and driverless cars. He serves with Geoff on the FCC's Broadband Deployment Advisory Committee and is the Vice Chair of the Competitive Access Subcommittee.

 

            Gus is an Assistant Professor of Law at the University of Nebraska, College of Law. He's also the Co-Director of the law college's Space, Cyber, and Telecom Law Program. Gus is an expert in telecommunications law and technology, including data and cybersecurity, and was recognized as a cybersecurity and data privacy trailblazer by the National Law Journal.

 

            I'm happy to say all three of our guests today serve as expert volunteers on the RTP as well so you can learn plenty more about them at regproject.org.

 

            In just a minute, I'll turn the floor over to Geoff. Before I do, I remind everyone that The Federalist Society takes no position on particular legal or public policy intuitive, and therefore, all expressions on Free Lunch Podcast are those of our featured speakers.

 

            Also, as usual our speakers will take questions after their remarks so please be prepared with any questions that you might have prior to the start of our Q&A period.

 

            Geoff, Brent, and Gus, thank you for joining us today as our Free Lunch Podcast guests, late on a Friday in the summer. It looks like we've got a good many guests as well. Geoff, I'm going to go ahead and give you the mic, sir.

 

Geoffrey A. Manne:  All right. Well, thank you, Devon and thanks to everyone for being here. I will take just a couple of minutes to introduce things and then turn it over to Gus and Brent. As Devon pointed out, this is the second podcast focusing on net neutrality and as anyone who isn't living under a rock knows the net neutrality debate's been raging for an incredibly long time—some would say interminably long. And it's interesting to note that with this podcast, we move into an issue of constitutional law. So net neutrality, which started as a largely technical debate over network system design, is now an issue of constitutional law. Perhaps it has jumped the shark.

 

            This latest battlefield, as Devon mentioned, concerns the permissibility of states now to enact and enforce net neutrality laws or regulations. So when the FCC in 2017 voted to repeal the 2015 Open Internet Order—and for convenience sake, I think we'll probably mostly refer to the 2015 Open Internet Order as the OIO—as the 2017 vote and enacted in 2018 order overturning it as the RIFO, the Restoring Internet Freedom Order.

 

            The RIFO re-reclassified broadband internet access as an information service, rolled back the OIO's net neutrality rules and -- excuse me, rolled back the OIO's net neutrality rules mandating no blocking, no throttling, no discrimination, and no paid prioritization of internet content by ISPs. Virtually, as soon as that happened, many states announced plans to challenge the RIFO in court and more than half of states have since then introduced or passed executive orders, resolutions, or legislation that would or would have in varying ways re-impose the OIO's net neutrality mandates.

 

            Many of these have failed to pass, but at least three states have managed to pass baby net neutrality bills. Six states have issued executive orders imposing net neutrality requirements in state contracts and several more bills are pending.

 

            So the fundamental question raised by these actions is are they permissible? Now, the Constitution makes the laws of the United States the supreme law of the land. And based on its interpretation of the law of the United States, known as the Communications Act, the FCC in the RIFO sets for, quote, a "calibrated, federal, regulatory regime based on the pro-competitive deregulatory goals of the 1996 Telecommunications Act." And it states that broadband service should be governed, quote, "by a uniformed set of federal regulations rather than by a patchwork that includes separate state and local requirements." The RIFO also states that it affirmatively, quote, "preempts 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."

 

            So here to discuss now whether constitutional legerdemain can conjure any loopholes that would enable these state actions to evade what may sound like a pretty straightforward impermissibility are Gus Hurwitz and Brent Skorup. Gus and Brent will each give a few minutes of opening comments, and then we'll jump into a discussion, and then we will open it up to questions at the end. So take it away, Gus.

 

Justin (Gus) Hurwitz:  Okay, thank you, Geoff. Thanks for everyone who's here and thanks to FedSoc and RTP for hosting this discussion and having me to participate in it. To answer Geoff's question, is there any constitutional legerdemain that can conjure up a loophole to allow state regulation in net neutrality. I'll just jump in and cut to the chase and say no. But we have another 45 minutes or so that we should talk about this. So I'm going to take a couple of minutes to provide a bit more background on the -- both 2015 and 2017 orders—what they did generally and in the context of preemption. And more generally, how preemption plays out historically with the FCC for some stage setting.

 

            So as Geoff said the 2015 Open Internet Order really had adopted four specific rules: the no blocking, no throttling, no paid prioritization rules, and an enhanced transparency rule requiring ISPs to be upfront about and to disclose how they handle consumer internet traffic. The 2017 RIFO, it revoked the first three of those rules. It revoked the no blocking, no throttling, and no paid prioritization rules. But it enhanced the transparency rule. So put in place a more robust transparency rule. And the reason for this, the underlying thinking behind the approach in the 2017 order is to enable both federal and state governments to police the conduct of ISPs using antitrust law and consumer protection law.

 

            So instead of saying here are the prescriptive things that you cannot do under this communications act regulation, we're going to require ISPs to disclose and share with consumers and the government how they are handling data so that we can determine if that's an antitrust violation, and if so, bring antitrust litigation against the ISPs. Or so that if you say, "This is how we're going to handle consumer data," and you do something different, then state or federal consumer protection authorities can bring an unfairness or deception claim against the ISPs.

 

            So we already have, as envisioned by the new order, some role for state government preserved and actually enhanced as compared to the previous 2015 order. And this is actually a common thing in communications law. The FCC has long been at the forefront of scholarly discussion and litigation over preemption issues and federalism issues. Questions of who regulates the telephone network, historically, have been very complicated and difficult because, historically, the telephone networks comprised two distinct components and intrastate local telephone exchange network, which was entirely within individual states. And an intrastate long-distance network that interconnected those networks. And historically, this was all controlled by one large monopoly, AT&T, before the breakup.

 

            So this gave rise to a lot of discussion and legislation and litigation trying to understand the relationship between the States and the federal government. And the basic answer that evolved was purely intrastate components of networks are within the State's domain. So they're subject to state regulation. But the interstate components, the things that go between states—long-distance networks or local-exchange networks crossing state lines for instance—that falls into the federal regime and states are preempted from regulating that except to the extent the federal government, the FCC, authorizes them to do so.

 

            So this is an area that has a long-standing and rich history of preemption and federalism issues and we're now seeing the latest version of this play out with net neutrality. And really, as I hand things off to Brent for some intro comments, the internet—to take away Brent's thunder—has long been understood, always been understood, as an interstate service that crosses state lines. So you can guess where that goes. But with the wind taken out of Brent's sails perhaps a bit, I will hand things off to him.

 

Brent Skorup:  Thank you, Gus. And thank you, Devon and Geoff and The Federalist Society for hosting this talk. So as Gus said, there's a lot of history here and when, in December 2017, the Republican majority FCC eliminated the 2015 internet regulations, the response was very rapid and aggressive and net neutrality went to the state level. And there's been immense pressure on states, the state legislatures, to do something about net neutrality and this is a novel move. I believe at this point, 36 states have some kind of pending legislation. As Geoff mentioned at the beginning, some states have done executive orders. There are six of those: Hawaii, Montana, New Jersey, New York, and Vermont have each done executive orders from the governors. And what these do are -- it requires the agencies within the State can only purchase broadband services from internet service providers that abide by net neutrality principles statewide. And as we'll get into, that becomes a problem.

 

            As far as bills go, passed legislation, it looks like California, Massachusetts will pass something soon. But at this point, there are only three states that have passed legislation. As I mentioned there was about three dozen that have pending legislation. But three have passed and that's Oregon, Vermont, and Washington. Oregon and Vermont, similar to executive orders, they relate to state contracts and require that agencies that are contracting for broadband services only do business with those that abide by net neutrality principles. And these principles, by the way, are virtually copied and cut and pasted from the 2015 regulation, FCC regulations.

 

            Washington State is unique in that, and even more troubling, they don’t even attempt to regulate what state agencies do; they attempt to regulate internet service provision and network management practices of ISPs in the State as fairly broad suites of power they're claiming. It's also worth mentioning, according to NARUC, the telecommunications, the PC regulator group, 122 cities have also pledged to require internet service providers to abide by net neutrality rules in order to do business with their municipalities.

 

            So what you're seeing, in short, is dozens or hundreds of local and state regulations popping up. Much of these use the same language because of how vague these rules are. There's no certainty about how these will look in the end one you have interpretations. I'm not aware of any litigation that's gone over these state bills. Only Vermont law has gone into effect, and that went into effect in July. For Washington and Oregon, those take effect next year.

 

            But that's kind of the lay of the land, and I'll turn it back to Geoff for more questions.

 

Geoffrey A. Manne:  Great. Well, thanks guys. So I think we have the kind of basic lay of the land, and I guess I would sum it up by saying, the States or some of the States are trying to do what the federal government won't do right now, which is require ISPs to operate under net neutrality rules that are the same as or similar to those in the 2015 Open Internet Order.

 

            So we know what's going on. So now the question is what is this constitutional question that is raised by the fact that this form of regulation or attempt to regulate has shifted to the States? And to me, of course, as the topic of this podcast suggests, the preeminent question is the question of preemption, whether having explicitly rejected those rules and put something else in place instead—and Gus talked a little bit about what that was and we'll probably talk some more about it—whether it is, in fact, permissible for the States to do what they're doing.

 

            And so, Gus already answered that the answer to that is no. But I guess now I would ask Gus if you could unpack that a little bit because we do have some 40 minutes or so and just lay out for us the basic reasoning, the basic constitutional law or other logic that says, at least in some cases, what the States are doing is not permissible under our constitutional structure, and if properly challenged, will likely or could well be struck down.

 

Justin (Gus) Hurwitz:  Yeah, so as Geoff started by -- started this call by discussing briefly preemption as based on the concept, based on the idea that federal law is the supreme law of the land—the Supremacy Clause—but that doesn’t mean that states don’t get to do anything. Instead, we have a complex doctrine of under what circumstances do federal laws preempt state efforts to do their own regulation? The easiest case where we see this resolved is expressed preemption; that is if the federal law enacted by Congress says clearly the States are preempted from regulating in this area, and that is not what we have here.

 

            So we need to recognize to start that the FCC is creating regulations. It is not creating law. So we're operating under a law that does not expressly preempt a state regulation. So when, then, can states regulate or when, then, can we say that the federal regulation or federal law, if it doesn't expressly preempt the States, does preempt the States? Generally, we look at if there are conflicts between the federal regulation and what the States are trying to do. We say the federal law is supreme. Or if the field as a whole is filled by the federal regulation, then if there's no void for the States to fill, the States are free to regulate there. And that's where things get really interesting in the context of net neutrality. If what the FCC had done was to say, "Here are the rules that are going to govern how ISPs conduct themselves," that looks a lot like field preemption. The FCC is saying, "Hey, every ISP, every business fitting into this category in the United States, these are the rules that you live by." So the field has been preempted.

 

            But that's not what the 2017 Order did. The Restoring Internet Freedom Order said, "We are taking away the rules put in place by the 2015 Order." So the question is is that regulatory? Is that a use of the federal regulatory authority to say, "These are the new rules that govern that law -- the land, and the rules are there are no rules." Or is what the order did to say, "We're undoing the rules that were here before. We're not putting anything in place. That would create a void that in principle the States could fill." And courts have looked at these sort of issues. There have been cases going back and forth on either side. Some courts have looked at situations like this and said, "A void had been created. The agency is not using its authority so it is not putting in place rules." The more common outcome, however, is for the courts to say, "The agency has set the new rules that govern -- that are the law of the land, and those rules are deregulatory rules." And that would be in conflict with any state rules to regulate and it is filling the void by creating a new deregulatory role of the land so it does have preemptory effect.

 

            So that's the crux of probably what courts will look at in determining whether or not the FCC regulations have preemptory effect.

 

Geoffrey A. Manne:  So let me just ask you, though, when you were summarizing the RIFO, you pointed out that it isn't just deregulatory. It actually enacts a heightened transparency requirement. That may not be as regulatory as some net neutrality proponents would like, but it is, in fact, regulatory. And I think even perhaps more to the point, although I'm not sure which of the two prongs that you just mentioned it comes under, it's pretty clear if not explicit that the purpose behind that was, in fact, to increase the amount of disclosure to sort of heighten the ability for consumer protection and antitrust regulators to regulate in this space instead of the FCC. And so you could call that un-net deregulatory, but I don't think you would say that it, in fact, means that the FCC said, "We are entirely out of this and all we're leaving behind is a deregulatory mandate."

 

Justin (Gus) Hurwitz:  Yeah, so that's one of the strong reasons that courts are likely to look at the new rules and say, yes, these do have preemptory effect. There are several indicia that the FCC was deliberately taking steps to put in place a new regime that happens to be deregulatory. So you have both the transparency rule being heightened, suggesting, "Hey, the FCC's actually doing something here." That rule is part of a broad understanding of a new approach relying on federal and state antitrust and consumer protection law. So, in fact, it's not just blowing up the existing regulations. It's saying, "We're taking the existing regulations away and there's this other thing that will be in their place." And importantly, the order does expressly say that it is intended to preempt states' regulation. So courts are likely to look at all that and say, "Yeah, the FCC was consciously doing something here with its federal statutory authority." And that can have preemptory effect.

 

Geoffrey A. Manne:  So let me ask for a second about that explicit -- the explicit preemption. In a sense, I guess my question is does it really matter at all? In other words, it seems to me that, as you just described it, the strongest arguments relate to the structure of the regulation that they've put in place and what they clearly said they were doing in repealing the 2015 order. Isn't it sort of gratuitous to say, "And, by the way, we explicitly preempt here?" So gratuitous in the sense -- in one sense that -- in a legal matter that may not be necessary, but that doesn't mean you shouldn’t do it, but also in the sense that maybe they don’t even have exactly that authority, that preemption is more a function of what they're doing with the law. And just saying preemption isn't enough to actually get you preemption.

 

Justin (Gus) Hurwitz:  Yeah that as a formal legal matter is correct. Agencies can't create express preemptory authority in a statute that doesn't have express preemptory authority by saying, "And we're preempting." But it does color how courts are going to look what the agency is doing and understand how to interpret the agencies use of its power under the statute. And it is entirely possible that a court will look at the order and say, "That's cute. You said this preempts, but our reading of the statue and what you're actually doing with your rules, we don’t think that's sufficient to trigger preemption." I think that that's unlikely, but it is a possible outcome.

 

Brent Skorup:  And I'll add the FCC has a broader section over all interstate communication services, wired or wireless. And the Supreme Court has recognized in losing Public Service Commission, 1986 case that FCC preemption is… Well, I should back up for a moment. The FCC rooted its preemption authority in what's called the impossibility doctrine, and that's where it's impossible to separate the interstate and intrastate components of the service.

 

            Common sense tells all of us if you hop on your phone right now, hopefully you're not doing it right now, but if you hopped on your phone right now and browsed, you're data transmission would be almost certainly going interstate to servers across the state, possibly across national lines. And internet access is inherently interstate service. And states recognize that. So they try to be a little clever, with the exception of Washington, they tend to be a little clever and say that they are only regulating the contracts that their state subunits enter in to. And the problem there is -- so courts have seen this before where states attempt to regulate what their subunits do via contracting. And courts are pretty clear that you cannot by executive order, legislation, do what's tantamount to regulation of interstate services by trying to end-around and regulate what your agencies do. And this is pretty clearly tantamount to regulation. In fact, all these state laws, as I mentioned, virtually copy and paste from the FCC 2015 order. In their definitions in these state bills and executive orders, they say that the services they're regulating are those that transmit to all or substantially all internet endpoints.

     

            Now, all our internet -- all or substantially all internet endpoints reach across state lines and national boundaries. And so they kind of give away the game in their definitions that they have in these laws. I think you have to conclude this is mostly about saying that you're a pro-net neutrality state because I think the arguments that they're permitted to regulate are extremely weak just because of the inherent interstate nature of the internet. And the FCC rooted its preemption authority on this interstate nature of internet services.

 

Geoffrey A. Manne:  So I know that it makes some people break out in hives, but I'm going to mention the dormant Commerce Clause and we can -- we don’t have to dwell on this for too long. But isn't the impossibility argument… I don't know, I'm not a constitutional scholar so I may be mangling this, but isn't it the same as, or at least related to, a dormant Commerce Clause argument that would say that the -- by virtue of the same fact that internet traffic invariably travels across state lines, that one state's enactment of these kinds of stringent rules would frustrate another state's ability to regulate as it sees fit? Am I correct that the same logic would potentially create a dormant commerce clause claim there too?

 

Brent Skorup:  Yeah, that's right. For dormant Commerce Clause, typically it's when there's an absence of federal law and states are discriminating or burdening interstate commerce. If it unduly burdens interstate commerce, they can't do it. And the courts will do -- they'll weigh the State interests against the burden on commerce and apply less restrictive means test. But that tends to be when there's an absence of federal law. And here, just with the broad jurisdiction of the FCC for interstate communications and with express preemption, or a claim to preemption in the order, yeah, I think there's definitely a dormant Commerce Clause angled to it, but because there isn't silence in the federal statues, it wouldn't be my first argument.

 

Justin (Gus) Hurwitz:  Add to that that if there is a dormant Commerce Clause issue, we're going to need to get into the weeds of how a specific state's regulations are written and drafted. If they're drafted in a way that they're only effecting ISPs doing business in the state to the extent they're doing business in the state, there's less likely to be a dormant Commerce Clause issue because it's not effecting how the ISPs conduct their end-user business in other states.

 

            But then we have a greater impossibility concern and a greater concern that the ISPs are being subject to exceptionally complicated regulations, possibly requiring them to do business in an impossible sort of way, which heightens the argument that regulation should be preempted by the federal rule.

 

Geoffrey A. Manne:  That's a good segue because I wanted to ask about the executive orders and resolutions that deal specifically, as Brent said, in a sort of 'cute' manner or that are couched in terms of regulating just when the State is acting as a commercial actor and contracting with an ISP for broadband service. And I guess the question here is so as Brent pointed out that's what's happened in a number of the States and I guess my question is at the same time it must be the case that States have fairly broad authority to determine what the nature of their contracts that they enter into are. And I think Brent may have mentioned this, with respect to say an executive order that mandated this for state contracts, it would presumably be a little harder to get preemption. And my question is so what's the dividing line? When does an executive order pass from being a perfectly permissible exercise of the State's ability to decide what kind of contracts it wants to enter into and turn into something that looks more like an effort to submissively regulate? So that's…either.

 

Brent Skorup:  So there is this doctrine called the market participant doctrine, and this comes from the Supreme Court in Boston Harbor case in '93 and Gould Incorporated in '86, but the market participant doctrine immunizes from federal preemption when States are conducting themselves in a way that any private purchaser of services would conduct themselves.

 

            And so that's what the States are trying to do via these executive orders and this legislation is to say, "We're like any private contractor. We can insert contract terms with the vendors we work with." The problem they'll run into is that courts are quite clear that executive orders like this and contract terms cannot amount to regulation -- or cannot be tantamount to regulation. And this is very clearly tantamount to regulation because… It would be a trickier case if the terms of these bills and these state contracts were limited to the ISP services provided to state agencies. However, they don’t do that. They require net neutrality principles, not only for state agencies but for all retail customers within the State. And that's tantamount to regulation. I think courts will see right through that within minutes.

 

Geoffrey A. Manne:  Yeah, that sounds like a sensible dividing line. Definitely. Gus, did you want to add anything? --

 

Justin (Gus) Hurwitz:  Brent did a wonderful job of responding to --

 

Geoffrey A. Manne:  -- the question of when an executive order be --

 

[CROSSTALK]

 

Justin (Gus) Hurwitz:  -- no need to further compound.

 

Geoffrey A. Manne:  Okay. So let me ask a sort of similar question with respect to something else that you mentioned, Gus. So you pointed out that it's part of the intention of the 2017 order was to -- explicitly to shift authority for monitoring and governing ISPs to state and federal consumer protection and antitrust regulators. So my question is when -- so is there—not that this has necessarily happened, but one could certainly imagine that it would—what would happen if a State were claiming its appropriate exercise of police powers or protection of public health and safety, or whatever, protection from deceptive trade practices, if under that claimed authority it essentially enforced its consumer protections laws in such a way that it reenacted the 2015 Open Internet Order. So it consistently went after ISPs that engaged in any kind of blocking or throttling or paid prioritization. Is there a point at which the FCC's 2017 RIFO could even preempt the enforcement of state consumer protection or antitrust laws?

 

Justin (Gus) Hurwitz:  It's a really interesting question. So long as the State laws are being enforced as they could or would be enforced against any other entity. So if the standards for a deception claim under a state mini FTC act, baby FTC act, were to be the same standards that the agency were to use in bringing that case against a manufacturer of widgets selling those widgets, then there shouldn't be any concern. So, so long as it's a law of general applicability being applied under the standards that apply to any other actor in commerce, it should be fine. If the agency were to try and carve out ISP specific standards, then courts might start to get a little suspicious. And, really, this comes down to the same discussion Brent was having, which I'll frame slightly differently.

 

            Courts aren't stupid. Judges aren't stupid. If they look at what the State is doing and they see a systematic effort to go after ISP-specific conduct and manipulate their state laws in a way that is tantamount to an ISP-specific regulation, at that point judges might start to say, "Okay, look, this is problematic what you're doing." And you'll start to see ISPs in defense saying, "Hey, Your Honor, look this claim has been preempted." You'll probably start to see that against any consumer protection effort at the state level just because good lawyering throw all of you defenses in there—not necessarily good lawyering, but that's what we probably see.

 

            It wouldn’t be, however, until there was a systematic effort on the part of the State to craft out of its existing general statute a sector specific set of regulation that there'd be trouble.

 

Geoffrey A. Manne:  So let me ask one more question before opening it up to our listeners to ask questions of their own and if they don’t have any, I have more questions. So I'm curious whether -- so, obviously, as I said before, the whole net neutrality debate is arguably -- I think it's inarguably interminable. It seems like we're just sort of kicking the can down the road again. When, if ever, does this reach an endpoint, right? We're haggling over the scope of who gets to and how they should regulate broadband internet access service. At some point, that's got to land somewhere. How do we get to that point and what is that endpoint?

 

Justin (Gus) Hurwitz:  So I'll give the absolutely, 100 percent correct but also completely unrealistic and naïve answer, which is we need federal legislation to address all of the net neutrality concerns and to do so in a way that clearly preempts state efforts to regulate on a state-by-state basis. And the real tragedy of net neutrality is that there's widespread agreement amongst almost all actors about what should go into such legislation. But the political reality is this is a wedge issue on both sides, but especially on the left and we're not going to see the sort of political compromise or capital expended that's going to be necessary in order to get legislation through.

 

            So I guess that counts as a non-answer because I told you what we… But the right answer is that's never going to happen.

 

Geoffrey A. Manne:  Okay. So, Brent, do you have any different take on it? Gus's answer is federal legislation that we'll never that. That doesn't sound like much of an endpoint. So could you identify a different endpoint? Or maybe there isn't one. Maybe we just debate this in perpetuity, which would be really fun.

 

Brent Skorup:  Yeah, a few thoughts. I think, I mean, ultimately there's been tremendous litigation over net neutrality already. It's been rejected by federal courts, the FCC's previous attempts twice, although the last one survived. The courts will decide this, and actually, I think we're going to see -- I'm optimistic that we're going to see this diminish as an issue. And one point I've made, along with others for a while, is that net neutrality regulation treads on First Amendment rights in a very serious way. And it became clear the last time the FCC in 2015 when they brought the rules, because of First Amendment concerns and because of federal policy, I should say actually federal law Section 230 of the Communications Act allows internet access providers to block objection content, like pornography and that sort of thing.

 

            So the Obama FCC had a very serious problem on their hands that they've…not just First Amendment, but federal law allows ISPs to block offensive content. So what they had to do to get around this was bifurcate the services that internet service providers ostensibly offer. And so what they said is if you offer conventional internet access, you are highly regulated. If you filter, if you block content, you are not regulated at all.

 

            And so this is a very perverse incentive for internet service providers, whereas you're heavily regulated under Title 2 of the Communications Act if you offer conventional service, and not regulated if you filter content as Congress hoped that internet access providers would. This was -- this First Amendment issue and Section 230 issue was raised by Judge Kavanaugh, coincidentally, and all that to say this fact that any regulation's going to need to bifurcate internet services into a curated internet and an un-curated internet, I think takes all the wind out of net neutrality movement because if states or the federal government crackdown and enforce net neutrality strictly, ISPs will, at some point, filter the internet and completely drop out of the regulatory framework. And for that reason, I think this issue if a court doesn't strike it down on First Amendment grounds, I think attempts at regulating this will just force the world that net neutrality -- components don't want to see, which is widespread filtering of internet services.

 

Justin (Gus) Hurwitz:  So I'll jump in and add a little bit to that. One way to escape the First Amendment concerns, by and large, is to do what the RIFO order does. Take the consumer deception approach. False speech isn't protected by the First Amendment. It's an ISP, or for that matter, any company makes materially false and deceptive statements in order to affect consumer behavior. Regulating that sort of conduct is very different than regulating ordinary speech. So the approach that the FCC has carved out in the recent order is far more likely to avoid any First Amendment concerns.

 

Geoffrey A. Manne:  Right. So it's interesting, and I do believe Judge Kavanaugh made exactly this point, that what ultimately ends up mattering is what you say you're going to do, and as long as you adhere to that you're in the clear. And where you get into trouble is where you deviate from that. And even if that means that what you say you're going to do is, in fact, blocking and throttling or something else that might be impermissible under net neutrality, you're actually -- you effectively reach the same result as this carve-out would have under the 2015 rule. But under the 2017 rule, you're actually getting a kind of heightened oversight of the scope of that carve-out, I guess. And I think, if I'm characterizing you and Judge Kavanaugh right, that wouldn't create First Amendment problems, even though the result may actually not be all that different than what we would've had under the 2015 order.

 

Brent Skorup:  Yeah, that's right. Yeah, go ahead.

 

Justin (Gus) Hurwitz:  And being in good company that I probably do not deserve to be in such good company, but the characterization of both of our statements is correct.

 

Geoffrey A. Manne:  And Brent, were you going to add something to that?

 

Brent Skorup:  Yeah, just briefly. You know, it came out during litigation that because this First Amendment, Section 230 carve-out that the Obama FCC had to do, the rules were essentially voluntary. The judges who affirmed the 2015 order said something along these lines, and I think this has become more common knowledge that net neutrality regulations because of Section 230, because of the First Amendment, will be essentially voluntary because you will always have the option to filter content and stop being regulated. And that's…and the FCC, the current FCC --

 

Geoffrey A. Manne:  Well, yeah, but it doesn't mean you stop being regulated. You're still regulated by consumer protection.

 

Brent Skorup:  Right. Stop being regulated by net neutrality rules. Right. And the current FCC actually cited this, this voluntary nature and this perverse incentive to filter as one reason to get rid of the 2015 rules. And, right, I think generally applicable consumer protection and competition laws gives much more teeth and prevents the sort of things that most of us are concerned about when it comes to how internet service providers deal with the services they offer to us and the content they transmit.

 

Geoffrey A. Manne:  Devon, I think it's a good time to open it up to questions if there are any.

 

Devon Westhill:  Yeah, that sounds great. Thanks, Geoff. We've got about 10 minutes left. So let's go to audience questions. In a moment, everyone on the call is going to hear a prompt indicating the floor mode's been turned on. After that, if you'd like to request the floor, enter star and then pound on your telephone keypad. I'll open the floor now.

 

            Okay, the floor mode's on. When we get to your request, you'll hear a prompt and then you can ask your question. We'll answer all the questions in the order that they're received. Again, we've got about 10 minutes to answer any questions that you might have. So enter star and then pound on your telephone keypad if you have one. Seeing none right away, Geoff, I know that you have quite a few things that you wanted to potentially finish up with in case there're not questions, so I'll hand it over to you and let you know whether we get a question in our queue.

 

Geoffrey A. Manne:  Okay. I was going to say we'll try to ask sort of short questions so we take a breath long enough to allow people to ask other questions. But then I decided I wanted to ask about the California legislation and we could probably talk for a while about that. But I do want to ask about the California legislation and in the interest of everything, I will focus in particular on this one provision in the California legislation that, if I understand it right, would actually impose the threat of criminal penalties for violation of the statue. In this case, the legislation includes a provision that, as we were discussing, prohibits the State from contracting with an ISP unless it certifies under penalty of perjury that it won't violate net neutrality. And so jail time is now on the table for net neutrality violators in California. And I guess my question is what beyond the obvious is troubling about this?

 

Brent Skorup: Yeah, so California is -- I believe this is unique to California. They have a perjury provision in their pending law that would impose criminal penalties if you're an internet service provider and you certify you're in compliance with the net neutrality provisions and then later you're found out to not be in compliance with the net neutrality provisions. It's just the punitive nature and the criminal penalties is alarming enough, particularly when you've realized how vague net neutrality provisions are. So Gus talked about no blocking, no throttling, and so forth. All of these have a massive exception for reasonable network management. No one knows what reasonable network management is. It took the FCC, the Obama FCC at the end of its term to look at one of these. It took them, I believe, six months to determine if zero rating was reasonable network management service. There's a multifactor test. All that to say, you don’t know if you're committing perjury or not because of how vague all these exceptions are. And so you could be found in violation. And this raises obvious due process concerns because of the vagueness of these regulations that you have to comply with.

 

Justin (Gus) Hurwitz:  Yeah, and I'll add stepping outside of the California legislation, and Brent can correct me if I'm wrong that it's Vermont, one of the other states doesn't have a criminal perjury clause, but it does require certification to a state official and inspection by the state of the network provider's operations to insure that they are net neutrality compliant under the terms defined by the law. Note to add to the confusion, Brent just highlighted the vagueness concern, different states could have different interpretations of the same language; what is required under similar net neutrality provisions just amplify those concerns. But what the heck is this state auditor supposed to be looking at when they're reviewing switch configurations? It's another perplexing question of what would these statues mean? How would you comply with them? And further demonstration of why preemption is appropriate.

 

Geoffrey A. Manne:  So, Devon, unless you tell me we have a question, I'll ask another one. One of the… And that relates to one of the things I was curious about, which is whether… So as you just suggested, Gus and Brent, there may be some let's say confusion about whether as enacted or proposed the State legislation would, and I'm going to paraphrase here and say sort of do even what net neutrality is supposed to do. And so my question is, I guess, whether there is, in fact, maybe anything about any of the state legislation we've seen that actually improves upon what the federal legislation was going to do, or did do in 2015.

 

            We are, of course, used to thinking of the States as laboratories of democracy and all of that, and here we have 30 some-odd efforts at connecting net neutrality regulation. Brent pointed out that a lot of them were just cut-and-paste of the 2015 order. But maybe some of them weren't and with the exception of some obviously problematic things, like criminal penalties, it's certainly possible that some of them would do a better job than the 2015 order. Maybe not as good as some people think the 2000 -- the RIFO is, but there might be something interesting there, and I'm curious if you've noticed anything where you see a state doing something that actually aims at the largely competitive problems that one might think net neutrality was supposed to deal with in a sort of creative and actually positive way.

 

Justin (Gus) Hurwitz:  I think the overwhelming silence is a way of saying, "Not really.
 And I'd respond quite strongly in the negative. If anything, we're seeing greater confusion and uncertainty in the industry and the best possible solution to net neutrality concerns is more entry, more buildout, more competition, more participation in the market, and we're seeing that frustrated if anything.

 

Brent Skorup:  Yeah, and I'd add just going back to Section 230, there is from 1996 this national policy announcement that it's policy of the United States that internet access and internet services should be, quote, "unfettered by federal state regulation," unquote. And all these state bills just fly in the face of that 20-year policy of the United States. And it's quite clear that they haven't thought clearly through this. Net neutrality, according to the D.C. Circuit, at least this is per se common carriage regulation.

 

            And so in effect, what you have states saying is that internet in their state is now intrastate common carriage service. And this raises all kinds of issues about what does state law say about how common carriers must act or are there mandatory tariff requirements? Would Google and Facebook now have to pay ISPs now that they're deemed common carriers in the state? What's the PC's role? These are muscles they haven't flexed in a while, this regulating intrastate common carriage within their state. I don't think they'll even get to this point just because of the preemption arguments, but from a doctrinal standpoint, it's quite clear that they haven't thought through all the ramifications of imposing net neutrality at the state level.

 

Geoffrey A. Manne:  Great. So, again, Devon, please interrupt if there's a question.

 

Devon Westhill: I should say there is no question, but I know that we could go really all day with this. We do have only about a minute left for closing remarks or something and we can pick this up on a third iteration of net neutrality at a later date.

 

Geoffrey A. Manne:  Okay. All right. Let's do that, then. Start with Brent and then Gus, if you have any final statements that you'd like to make or anything we didn't cover that you want to toss out there, now's your chance.

 

Brent Skorup:  Yeah, thanks. And thanks to our audience for listening in. So this trend, this new trend of states and cities regulating internet service is pretty alarming. This idea that we would have a balkanized internet regulated by dozens or hundreds, if cities are involved, regulatory regimes with internet is troubling, obviously. I take comfort in the fact that the FCC preempted this area. I see lawsuits against the States succeeding fairly easily just because of the interstate nature of the internet. I do hope federal legislators or perhaps the Supreme Court would put an end to the matter, but time will tell.

 

Geoffrey A. Manne:  All right. Okay. Thanks, Brent. And Gus, any last words? [CROSSTALK] --

 

Justin (Gus) Hurwitz:  Sure. Thanks everyone for joining us for this riveting discussion of net neutrality and the most exciting aspect of the entire topic, state's preemption. As a demonstration of the interconnected and interstate nature of these networks and global nature of these networks, I will just say that using the interstate network, I can report to you that there has been an indictment of 12 Russian military intelligence officers for using the global network to hack the DNC. That's the big news. And I'll add thanks to Geoff, who is joining us from Paris, to moderate this call, so even more global networks. So I hope that California doesn't ruin the internet by trying to regulate it with state law.

 

Geoffrey A. Manne:  I think that is a great last word. I hope that California doesn't ruin the internet. We all hope that. California does, of course, have a tendency to perhaps ruin some things. As Brent said, only time will tell. And I think we'll leave it at that. Thanks to everyone for listening. Thanks to Gus and Brent for their interesting and informative remarks. And thanks to Devon and The Federalist Society for hosting this.

 

Devon Westhill:  Thank you, Geoff, for moderating and for, as Brent -- or as Gus mentioned, from doing so from so far away. And thanks, Gus, and thanks, Brent, and thanks to the audience for joining us today. On behalf of The Federalist Society's Regulatory Transparency Project, we're are adjourned and we'll see you guys next time.

 

Operator:  On behalf of The Federalist Society Regulatory Transparency Project, thanks for tuning in to Free Lunch. As always, you can subscribe on iTunes and Google Play to get new episodes of Free Lunch when they're published. Also, visit our website at RegProject.org. That's R-E-G Project.org. There we regularly upload content in addition to our podcasts, such as short videos and papers. And you can join the discussion by sharing your story of how regulations personally effected to you. Until next time, remember there's no such thing as a Free Lunch.