Could the Conservative Attack on the Administrative State be Good for Net Neutrality—and for Progressive Regulation More Generally?

Posted in: Consumer Law

Earlier this week, the Department of Justice (DOJ) filed a lawsuit seeking to enjoin the State of California from enforcing its new law mandating net neutrality. The complaint alleges that when the Federal Communications Commission (FCC) repealed the federal net neutrality requirements in January of this year, it established a nationwide policy of laissez-faire for internet service providers (ISPs). In legal jargon, the DOJ says that the FCC’s January net neutrality rescission order “pre-empts” any state law that seeks to restore net neutrality.

In this column, I shall explain the likely path of the litigation going forward. It includes a potential surprise twist: If conservative scholars and Supreme Court justices succeed in what appears to be their goal of weakening federal regulatory agencies, that could actually be a boon to net neutrality and maybe to government regulation more broadly.

Net Neutrality in Brief

The roots of net neutrality date back to the 1950s, when AT&T had a monopoly on telephone service. At that time, most people rented their phones from the same company that ran the phone lines to their homes or offices, but some tech-savvy customers started connecting their own devices to the network. Ma Bell was unhappy, but the FCC and the courts sided with these customers, allowing anyone to connect anything to the phone network, so long as it did not damage the network. The legal framework required the phone company to be “neutral” with respect to whatever equipment was attached to its network.

Building expressly on the phone company example, law professor Tim Wu coined the term “network neutrality” in a 2002 proposal to treat the internet in the same way that the law treated the telephone company. Wu worried that without a legal requirement of net neutrality, an ISP might use its control over the gateway to the internet to favor some content over other content.

Why would an ISP do that? The short answer is money. An ISP might be part of a company that also distributes content. For example, Comcast owns NBCUniversal and could use its ISP services to speed up access to its own programming while slowing down or even blocking content from rivals. Even an ISP that does not own a content provider might favor, say, Netflix over Amazon content (or vice versa) based on contractual payments.

Persuaded by Professor Wu and other net neutrality advocates, the FCC during the Obama administration promulgated three core net neutrality rules: no blocking; no throttling (slowing down disfavored content); and no paid prioritization of preferred content. The regulation was challenged in court but upheld by the US Court of Appeals for the DC Circuit in June 2016.

The FCC is by law an “independent” agency whose members include both Democrats and Republicans, but given the staggered terms and appointment practices, the president’s party has a majority at most times. Thus, when Ajit Pai, a Republican, assumed the chairmanship of the FCC, he pursued his party’s goal of abandoning net neutrality. The January 2018 rescission order claims that market forces will satisfy consumer preferences for net neutrality and that a government mandate would stifle innovation.

I happen to think that the Obama-era policy of net neutrality was a good idea because of the oligopolistic nature of the ISP market (which limits the impact of consumer choice) and because open access to the internet for all content providers serves not just consumer welfare but also democratic values. Here, however, I shall set aside that policy preference to focus on issues of administrative law.

Pre-emption and its Limits

The DOJ makes a powerful argument that California’s net neutrality law is invalid. The federal Telecommunications Act of 1996 empowers the FCC to make rules governing the internet. The rescission order contains such rules, including (in paragraphs 194–204) provisions making clear that it not only abandons the Obama-era net neutrality policy but also forbids states from adopting such a policy.

While ordinarily the repeal of a prior federal regulation does not block states from adopting a similar or even identical regulation pursuant to their own powers, the FCC rescission order explains that as a practical matter, state regulation would have unavoidable spillover effects. Given the interconnectedness of the internet, the FCC says, it would be impossible as a practical matter for ISPs to comply with California’s net neutrality law with respect to California customers only. Thus, to preserve its policy of “light touch” regulation, the FCC rescission order blocks state net neutrality laws.

There is little doubt that the text of the rescission order purports to pre-empt state laws. Does it validly do so? I shall explore three kinds of arguments against the FCC’s position.

First, California could argue that the rescission order itself is invalid as a violation of the Administrative Procedure Act’s prohibition on “arbitrary and capricious” agency action or otherwise exceeds the agency’s authority. Indeed, in January, California joined with twenty other states and the District of Columbia to sue the FCC alleging exactly that. California can flesh out its argument for the rescission order’s invalidity in defending against the FCC’s new suit. If the rescission order is invalid, then so is its pre-emption provision.

Second, California could argue that agencies should not have the power to pre-empt state laws. The Supremacy Clause of the Constitution makes federal “laws” prevail over inconsistent state laws, but in recent years various scholars have argued that agency regulations are different. They are not exactly “laws” within the meaning of the Supremacy Clause, some of these scholars argue, nor should they be treated as such. Pre-emption, in this view, is a decision to favor federal over state rulemaking, and therefore only Congress—which provides representation for state interests—should make the call whether to pre-empt. A 2009 article by law professor Ashuthosh Bhagwat provides a useful summary of this argument and of the counterarguments in favor of the orthodox view that Congress can delegate to agencies the power to pre-empt state law. Of course, a lower court could not overrule Supreme Court precedent allowing federal agency regulations to pre-empt state law, but California could invoke the academics’ critiques of such pre-emption to argue against inferring such pre-emptive power in the FCC in this instance.

Third, in recent years, various conservative scholars, judges, and justices have proposed cutting back on or even overruling a central principle of modern administrative law: that courts should defer to reasonable agency interpretations of unclear federal statutes. Called the Chevron doctrine for the leading case, the principle of deference has come under attack on grounds that roughly parallel the attack on agency pre-emption: it is said that Congress, rather than agencies, should take responsibility for major policy decisions. Here too, California could not ask that a lower federal court overrule Chevron, but it could hope that the courts would decline to give deference to the rescission of net neutrality in particular. Perhaps without granting the FCC deference, a court might say that there is an insufficient basis for finding that the FCC has authority to pre-empt state net neutrality laws.

The Scrambled Ideological Landscape

The two more radical arguments just described—against pre-emption by agency action and against Chevron deference—have generally been favored by conservatives and opposed by progressives. Does that configuration make sense?

Since the New Deal and arguably even earlier, much of federal regulation has been achieved through acts of Congress that grant agencies the power to make rules, rather than by statutes that themselves contain all of the key details. Indeed, scholars of administrative law conventionally explain that development as inevitable: in a complex and fast-changing society and economy, Congress lacks the expertise and time needed to craft detailed regulations without the help of a massive bureaucracy. By attacking the doctrines that permit agency pre-emption and deference to agency rulemaking, conservatives seemingly attack regulation itself.

Yet notice two key limitations of the assumption that the attack on the administrative state is necessarily deregulatory and thus serves conservative rather than progressive ends.

First, new approaches that limit the power of federal agencies to regulate also can limit the power of federal agencies to deregulate. That is especially true with respect to federal pre-emption. Industry lobbyists often seek federal pre-emption of state regulation precisely because they hope to set a low ceiling on state regulation. Thus, the fact that arguments against agency pre-emption end up working in favor of state efforts to regulate is in no way peculiar to net neutrality. Across a wide range of subject areas, limitations on agency pre-emption could have the effect of empowering state regulators.

Second, even an overall weakening of administrative agencies might not be deregulatory in the long run. The standard argument for the necessity of agencies contains a logical gap. It is true that the members of Congress lack the time and expertise to regulate across a wide range of areas. They need to enlist a very large staff. But there is no necessity that such staff be located in the executive branch of government or in independent agencies. As my colleague Jed Stiglitz has explained, Congress could develop such expertise within the legislative branch itself.

To be sure, Professor Stiglitz argues that Congress has additional reasons for delegating power to agencies, but in a world in which Supreme Court doctrine foreclosed or greatly limited agency rulemaking, a future Democratic Congress likely would increase its own staff and start to write more detailed statutes. The result would be less agency regulation but not necessarily less regulation overall—and the regulations produced by Congress would be more durable, because they could not be subject to rescission by an anti-regulatory Republican administration.

Conservatives who seek to throttle the administrative state by cutting back on the power of administrative agencies should be careful what they wish for.