JONES DAY TALKS®: The D.C. Circuit’s Mixed Decision on Net Neutrality

Legal and regulatory battles continue over net neutrality, the concept that all internet traffic should be treated equally.

In Mozilla v. Federal Communications Commission, the U.S. Court of Appeals for the D.C. Circuit upheld the Commission’s deregulatory approach to net neutrality but also struck down an order blocking states from implementing their own rules.

Jones Day partner Brett Shumate explains what the court’s decision could mean for net neutrality moving forward.

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Dave Dalton:

We explore a lot of issues here at Jones Day Talks. But few have the potential wide-ranging impact of net neutrality. It turns out that this already complicated issue just became more complicated as the U.S. Court of Appeals for the D.C. Circuit vacated an FCC order preempting state net neutrality regulation and remands. If that sounds complicated, you're right. Fortunately, we have Jones Day partner Brett Shumate here to sort it out for us. I'm Dave Dalton. You're listening to Jones Day Talks.

Dave Dalton:

Jones Day's Brett Shumate works with clients on high- stakes regulatory litigation involving the government, notably in the telecommunications and technology sectors, and develops creative strategies to challenge state and federal laws and policies on constitutional and statutory grounds. He has argued more than two dozen cases in federal district courts and multiple appeals from the U.S. Court of Appeals for the D.C. 4th and 9th Circuits. Hey Brett, thanks for being here today.

Brett Shumate:

Thank you, Dave.

Dave Dalton:

You know, I'm really glad we're doing this podcast today and here's why. And all our Jones Day Talks podcasts are relevant and important and significant, but admittedly some of them are pretty narrow or niche-oriented. I think something like net neutrality impacts everybody in one fashion or another, so I'm glad we're exploring this issue a little bit today. What prompted this discussion is that on October 1, the U.S. Court of Appeals for the D.C. Circuit issued its decision in Mozilla versus the FCC and that was a net neutrality issue. But Brett, let's back up for a second. Explain for people who aren't quite sure what is net neutrality.

Brett Shumate:

Sure. Net neutrality can be a complicated topic, but it really can be boiled down into a concept that all internet traffic should be treated equally. And so over the last 15 years or so, that's been a very hotly debated topic at the Federal Communications Commission and throughout the internet. And over the last 15 years or so, the FCC has taken a number of different approaches toward net neutrality during different Republican and Democratic administrations. It has gone from a lightly regulated issue to a heavily regulated issue, now back to a lightly regulated issue.

Dave Dalton:

Okay. So we'll get to the specifics of Mozilla v. FCC in a second, but has net neutrality been litigated prior to this case?

Brett Shumate:

It certainly has. It's been the subject of litigation during the Bush administration, the Obama administration, and now the Trump administration. And the reason for that is the FCC's governing statute, the Communications Act, gives the FCC express statutory authority over certain forms of communications, like telephone services and cable services and broadcasting, but there's no part of the Communications Act that allows the FCC to regulate the internet.

Dave Dalton:

Okay.

Brett Shumate:

And so as the FCC has looked at this issue over the last 15 years or so, it has taken a number of steps to try to regulate the internet. During the Bush administration, there was a case called Comcast versus FCC that struck down the FCC's first try at regulating the internet. During the Obama administration, they adopted rules that would have treated ISPs, internet service providers, as if they are common carriers. That effort also lost in the D.C. Circuit. And then the Obama administration's last effort toward net neutrality was successful in a case called U.S. Telecom versus FCC, a decision from the D.C. Circuit in 2016 that upheld that approach toward net neutrality that treated ISPs as if they are common carriers, similar to how the FCC regulates telephone services, and adopted net neutrality rules for internet service providers.

Dave Dalton:

Okay. So there's definitely been some court action here. Let's talk about the specifics of Mozilla v. FCC. What was in dispute? What was the issue in this case?

Brett Shumate:

So in this case, the D.C. Circuit was reviewing the Trump administration FCC's approach toward net neutrality. That was an order adopted by the FCC in early 2018 that took a deregulatory approach toward net neutrality. And for our purposes, that order did three important things. First, the FCC reclassified a broadband internet access service as an information service rather than a telecommunication service, which meant that that service would be lightly regulated under Title I of the Communications Act rather than Title II as a common carrier service. Second, the FCC repealed and replaced the prior administration's net neutrality rules. And instead of strict net neutrality rules, the commission adopted a transparency requirement for internet service providers. And third, and importantly here for our purposes, the FCC prospectively preempted any state regulation of net neutrality that would have conflicted with or been inconsistent with the approach taken by the FCC in the 2018 order.

Dave Dalton:

Okay. I have a feeling this is where all this is going. So in the 2018 action, the FCC could overrule, if I'm using that term correctly, state regulations. Okay. So how did the court hold in Mozilla versus the FCC?

Brett Shumate:

So this was a very important holding by the court decision on Tuesday. Good news for the FCC is the court largely upheld the FCC's deregulatory approach toward net neutrality. The court deferred to the FCC's reclassification of broadband service under Title I. It also deferred to the FCC's deregulatory approach, favoring transparency over strict net neutrality rules. But importantly, the court vacated the FCC's order that preempted perspectively all state regulation in this area. And what the court said was that the FCC did not show express statutory authority to prospectively preempt state regulation in this area.

Dave Dalton:

Okay. Expressed statutory authority. You know, I always thought the FCC was one of these agencies, if that's the correct term, in Washington that everybody was afraid of and just didn't get overruled. But I wouldn't call it a setback obviously. But does this mean the FCC could never preempt state net neutrality laws? Is this over? Or how do you see this playing out there?

Brett Shumate:

I don't think this is over. There's going to be a lot more to discuss on this topic, both at the FCC and in court, because although the D.C. Circuit said that the FCC could not prospectively preempt all 50 state laws that might conflict with the FCC's deregulatory approach, the court did say that the FCC could specifically preempt individual state laws to the extent that the FCC could show that there's a conflict with the FCC's approach. So instead of using a perspective approach, the court did leave the door open for the FCC to come back and use what we call conflict preemption principles...

Dave Dalton:

Okay.

Brett Shumate:

... to preempt specific state laws in particular cases.

Dave Dalton:

Okay. I've noticed when a decision like this comes down, it tends to raise as many questions sometimes as it answers. What do you think this means for net neutrality moving forward?

Brett Shumate:

Yeah, you're definitely right. It does raise a lot of questions, but it also provides a little bit of certainty. I mean, in terms of certainty, the decision does affirm the FCC's deregulatory approach for the most part, and that's a big win for the FCC. But in terms of going forward, I think there are five areas where there's some uncertainty here. First, there's uncertainty for the industry about state-level net neutrality regulation. What are the states going to do with this door that's slightly open by the court and the D.C. Circuit?

Brett Shumate:

Second, the court did remand back to the FCC three discrete issues for additional explanation. The court, like I said, largely upheld the FCC's deregulatory approach, but said the FCC didn't adequately consider and explain three discrete issues like pole attachments, the lifeline plan, kind of discreet issues like that, that the FCC needs to go back and take a second look at. But the court did leave the order in place during the remand. Third, I think you'll also see the FCC take some action, we don't know what yet, with respect to conflict preemption. And like I said, the court left the door open for the FCC to conflict preempt some specific state laws, so that could certainly be an area where the FCC takes future action.

Dave Dalton:

Okay.

Brett Shumate:

We could also see a future FCC undo everything that the FCC did in 2018.

Dave Dalton:

Oh.

Brett Shumate:

The court deferred to the FCC's deregulatory approach, but it didn't say that that approach was mandated by the Communications Act. So we've had a ping-pong approach toward net neutrality over the last 15 years, and that is not settled. This approach toward net neutrality was upheld for now, but a future administration could attempt to reinstate net neutrality.

Brett Shumate:

And I think last but not least, I think what all of this uncertainty means is that you'll see a renewed push for some type of federal legislation in this area to provide the industry with some certainty here...

Dave Dalton:

Right.

Brett Shumate:

... because like I said, the Communications Act does not grant the FCC express authority over the internet. There's no internet title in the Communications Act. But there have been efforts to try to get the Congress and the President to engage on this issue and come to some type of consensus that would stop the ping-pong back and forth between deregulatory and highly regulatory approaches and provide some certainty...

Dave Dalton:

Right.

Brett Shumate:

... to the commission and to the industry.

Dave Dalton:

Sure. In fact, you said the U word a second ago, uncertainty. Everybody hates uncertainty. The markets hate it and consumers hate it. I think even at the state level they hate it. People want to know and they want to be able to make plans and invest intelligently and plan for the future. So hopefully, hopefully something moves in that direction sooner rather than later. But let's go back to the states for a second. Have any states already adopted net neutrality rules? Is that happening? Has it happened or where are some of the states on this?

Brett Shumate:

They have. In the wake of the FCC's 2018 deregulatory order, some states weren't happy with that approach and they felt like they could take a different approach toward net neutrality. And so first out of the gate was Washington and then California. They adopted their own net neutrality rules that largely mirror the FCC's 2015 net neutrality rules that the FCC repealed in 2018. Some other states have also taken a slightly different approach by requiring any companies that do business with the state to abide by net neutrality principles. So for example, if an ISP has a contract with the state government in Vermont, the state's going to require that company to abide by net neutrality principles.

Brett Shumate:

Importantly, the California bill was passed in 2018, but it was immediately enjoined. The Department of Justice, acting on behalf of the FCC, and telecom industry groups filed a lawsuit to block the California bill while the D.C. Circuit was considering the FCC's preemption order.

Dave Dalton:

Okay.

Brett Shumate:

And so that state law has been enjoined pending the litigation in the D.C. Circuit. Well, now that litigation has come to a conclusion in the D.C. Circuit it appears, so I think we'll likely see the litigation in the California case take off in the next few months.

Dave Dalton:

How do you keep up with all this? I tend to ask this question a lot during these podcasts. You've got state regulators going at it. You've got suits filed in different courts across the country. You got the FCC. How do you advise clients? How do you stay current on an issue like net neutrality? It's got to be a ton of reading or research. And how do you make sure you know what's going on?

Brett Shumate:

It's a hot issue. It's been highly debated for the last dozen years or so. There have only been a couple of discrete actions that either the FCC has taken or the states have taken. Whenever the FCC or a state takes action with respect to net neutrality, it's going to get a lot of attention.

Dave Dalton:

Sure.

Brett Shumate:

And so that's something that I've followed for many years and have been advising clients on for many years about how to comply with the rules, how to challenge the rules in court. But we're largely talking about the FCC going back and forth...

Dave Dalton:

Yeah.

Brett Shumate:

... for the last 15 years over different approaches. And it's never going to make anybody happy whichever way the commission goes. So there's always litigation in this area.

Dave Dalton:

Sure. Sure. Well, let's get back to what some of the states are doing. How are some of the state's rules similar to what the FCC's rules were/are?

Brett Shumate:

Yeah, like I said, Washington and California have adopted their own rules that largely mirror the FCC's 2015 rules. And so what that means is the rules require broadband providers or internet service providers to treat all traffic equally. And so concretely, what that means is the rules prohibit ISPs from blocking lawful content on their networks, from discriminating or throttling lawful content, or engaging in what the FCC called paid prioritization, which is speeding up some traffic over other traffic in exchange for money. And all of that is usually subject to some reasonable network management practices that ISPs need to engage in to operate their networks. But for the most part, those are the three main rules that the FCC adopted in 2015 and that California and Washington have adopted. And those rules largely mirror requirements that were put on common carriers in the telephone space...

Dave Dalton:

Right.

Brett Shumate:

... many, many years ago. Those rules if you require an ISP or a telephone company to carry all lawful traffic, that is treating those companies like a common carrier because a common carrier has to take all lawful comers. And so these rules essentially treat internet service providers like common carriers, which are like telephone companies in that they can't block certain content or slow certain content on their networks.

Dave Dalton:

Okay. Okay. So let's bring this back around. The decision in Mozilla v. FCC came down October 1st. Something tells me this isn't over. What's the next step here? What do you expect to happen now?

Brett Shumate:

It's not over. The litigation could go a number of different ways at this point. First thing to note is that the court's decision is not immediately effective because the court allows the parties to figure out what their next steps in the case will be before the court issues what's called the court's mandate. So in the interim, the FCC's 2018 deregulatory order is still the law of the land. So what the litigants could decide to do, they could ask the full D.C. Circuit to hear the case all over again. That would be before a panel of about a dozen judges, rather than three judges. Or either side really could go up to the Supreme Court. The challengers, Mozilla, could petition the Supreme Court to consider aspects of the case that they disagree with, or the interveners or the FCC could ask the Supreme Court to consider the preemption holding that went against them. That's the D.C. Circuit case.

Brett Shumate:

Like I said earlier, I think you'll also see the California litigation heat back up again, which had largely been put on ice while the D.C. Circuit was considering the FCC's 2018 order. I think we'll have to watch and see if other states adopt net neutrality rules in this area, taking a signal from the court that additional regulation would be potentially permissible. So I think this could have a number of different moving parts here from the D.C. Circuit, at the FCC, in California, and potentially other states as well.

Dave Dalton:

Sure. You know, I shouldn't even say something like this because I don't know, but I would think the Supreme Court would want to take a run at something like this. Net neutrality is this household word status practically, and it's an issue that affects everybody. Would you be shocked if they petition and the high court says, sure, bring it on?

Brett Shumate:

It's a great question. I think that you're right. This is a hot issue. What's interesting is that the Supreme Court did consider a net neutrality issue back in 2005 in an important case called Brand X, and the court at that time was considering really early internet access service called cable modem service. And in that case, the court upheld the FCC's decision to classify cable modem service as an information service...

Dave Dalton:

Right.

Brett Shumate:

... which is exactly what the FCC decided in the 2018 order. So in many ways the Supreme Court may think that they've already decided this issue...

Dave Dalton:

Okay.

Brett Shumate:

... and they've deferred to the FCC, the FCC has gone back to the approach that they upheld in the 2005 case. So the court may think that there's no need to...

Dave Dalton:

Yeah.

Brett Shumate:

... reconsider an issue that they've already considered.

Dave Dalton:

We'll see. We'll see.

Brett Shumate:

You never now.

Dave Dalton:

Great take though. Yeah, definitely. Let's wrap it up with this, Brett. Big question. Can states regulate net neutrality?

Brett Shumate:

I think it remains to be seen. Certainly, the court's order opens the door at least to the possibility of state-level net neutrality regulations by vacating the FCC's decision to prospectively preempt all state regulation in this area.

Dave Dalton:

Okay.

Brett Shumate:

But I think it's going to depend on a couple of things. First, we could see the FCC come back on a remand and preempt specific state laws under their conflict preemption authority and that specifically could look at the California and Washington bills that mirror the 2015 FCC rules. And they could say, look, these specific laws conflict with our deregulatory approach, so they are therefore preempted.

Dave Dalton:

Right.

Brett Shumate:

If that happens, certainly I think you'll see more litigation from California and Washington challenging those decisions. Second, I think you'll see the litigation in California heat back up at some point where the Department of Justice and the telecom trade groups are challenging California's bill as preempted and as a violation of the Dormant Commerce Clause.

Dave Dalton:

Okay.

Brett Shumate:

So I think it remains to be seen what the outcome of that case will be and whether the court will allow the California bill to go into effect. And last but not least, I think one big outstanding concern is whether the First Amendment is an issue here that needs to be considered by these courts that are grappling with whether a state can regulate net neutrality.

Dave Dalton:

Right.

Brett Shumate:

That was an issue that was addressed by the D.C. Circuit in the prior net neutrality case, U.S. Telecom versus FCC, in which the court decided that the FCC's 2015 net neutrality rules did not violate the First Amendment. But in an important descent from rehearing, Judge Kavanaugh explained that net neutrality does violate the First Amendment.

Dave Dalton:

Oh.

Brett Shumate:

So there's an important decision by an individual who's now on the Supreme Court explaining that net neutrality does violate the First Amendment.

Dave Dalton:

Kavanaugh made this decision before he got to the Supreme Court?

Brett Shumate:

He did.

Dave Dalton:

Where he was before. Right. Okay. Sorry, go ahead, Brett.

Brett Shumate:

He issued this decision in 2017...

Dave Dalton:

Okay.

Brett Shumate:

... about a year before he was confirmed to the Supreme Court.

Dave Dalton:

Wow.

Brett Shumate:

And the Supreme Court has never weighed in on the issue of whether broadband providers are speakers entitled to the protections of the First Amendment. But then, Judge Kavanaugh explained in his dissenting opinion that broadband providers do engage in speech, they are protected by the First Amendment, and these net neutrality rules that require companies to carry all speech on their networks, even speech they may disagree with, it violates the First Amendment.

Dave Dalton:

Okay.

Brett Shumate:

So I think that's an important issue that hasn't been fully litigated, certainly not by the Supreme Court. It hasn't been addressed by any court considering a state- level net neutrality regulation. But that may be an important issue that needs to be decided at some point.

Dave Dalton:

I would think so. Brett Shumate, this has been great. Fascinating topic, really interesting information you brought us. This isn't going away anytime soon I'm sure. Would you come back later this year when there are more developments or as caseload develops? Let's talk more about this, okay?

Brett Shumate:

I'm happy to do it, Dave.

Dave Dalton:

Sounds great. Brett, thanks so much for being here today and we'll talk soon.

Brett Shumate:

Thanks very much, Dave.

Dave Dalton:

Take care. You can find Mark's complete bio at jonesday.com. While you're there, check out our insights page where you'll find great publications, podcasts, videos, and other really compelling content. Subscribe to Jones Day Talks and Apple Podcasts. As always, we thank you for listening. I'm Dave Dalton. We'll talk to you next time.

Speaker 3:

Thank you for listening to Jones Day Talks. Comments heard on Jones Day Talks should not be construed as legal advice regarding any specific facts or circumstances. The opinions expressed on Jones Day Talks are those of lawyers appearing on the program and do not necessarily reflect those of the firm. For more information, please visit jonesday.com.