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Can ’Net Rules Live Within State Lines?

The latest twist in the net neutrality debate has prompted a renewed interest in regulatory federalism. Opponents of the Federal Communications Commission’s Restoring Internet Freedom Order (RIF Order) have turned to state governor’s mansions and legislatures, seeking to restore at the state level regulatory restrictions that the commission repealed at the federal level. To date, six states have adopted executive orders and four have passed statutes that purport to impose net neutrality mandates on broadband providers.

Daniel A. Lyons

Daniel A. Lyons

Most commentary on state net neutrality has focused on whether the RIF Order preempts these state-level initiatives. But there is a second, less-often-discussed limitation on state power to regulate broadband network management practices: the Dormant Commerce Clause.

The Dormant Commerce Clause doctrine prevents states from imposing undue burdens on interstate commerce. Previous courts have relied on this doctrine to limit state attempts to regulate online conduct. The Internet is a national (indeed, global) network, meaning that state attempts to regulate the flow of traffic on that network are likely to have extraterritorial effects that burden interstate commerce. As a result, claims these rules contravene the Dormant Commerce Clause could well prove a difficult obstacle for state attempts to resurrect net neutrality restrictions.

Regulations Without Borders

Like early state attempts to regulate online conduct, state-level network traffic management regulations are susceptible to a Dormant Commerce Clause challenge. The Internet is a national (indeed, global) network, meaning that attempts to regulate the flow of traffic on that network are likely to have extraterritorial effects. If state net neutrality rules survive a pre-emption analysis, states should be ready for the claim that such regulations unreasonably burden interstate commerce and, therefore, contravene the Dormant Commerce Clause doctrine.

The party challenging the law bears the burden of showing the impact on interstate commerce. As an initial matter, it is not clear that the existing state-level net neutrality initiatives are limited to in-state conduct. For example, Vermont’s executive order prevents state agencies from contracting for broadband service unless the broadband provider certifies that it does not “engage in paid prioritization … to any Internet customer.” Similarly, Hawaii requires agencies to contract only with providers that “demonstrate and contractually agree to support and practice net neutrality principles where all Internet traffic is treated equally.”

Facially, these restrictions can be read to apply not only to contracts with in-state consumers, but with all consumers nationwide (or indeed worldwide). But even if the court construes these restrictions to apply only to contracts with in-state consumers, such regulations can disrupt the orderly flow of interstate traffic. Permissible network management practices would differ from state to state, depending on whether and how each state chose to regulate. Even if all states adopted facially identical statutes, fragmentation is likely to occur over time as 50 different sovereigns may reasonably disagree on enforcement. For example, what constitutes “reasonable network management” may differ from state to state.

Broadband providers are thus left with two alternatives: operate a nationwide network that meets the standards of the most stringent state — meaning that state’s law burdens out-of-state communications that would otherwise be legal — or Balkanize the network and make the delivery of network traffic less efficient, which burdens the delivery of out-of-state communications.

Of course, there is also a political dimension to states’ willingness to take net neutrality actions.

To the extent that the residents of states such as Vermont and California feel more strongly in favor of net neutrality protections than consumers in other parts of the country, the states’ willingness to enact a rule, risk a federal pre-emption challenge and expend public time and resources on enforcement keeps the political issue alive and signals the strength of their interest to national lawmakers, influencing the national debate. In this sense, it is perhaps unsurprising that the primary catalysts of state net neutrality rules are not state public utility commissioners, but governors and state legislators. They are directly elected by their constituents and, therefore, are well placed to read their constituents’ preferences and communicate them nationally.

A Check on States’ Power

But the Dormant Commerce Clause doctrine checks this political activism, to make sure that these states’ efforts to register their discontent with federal policy do not unduly burden residents of other states whose preferences differ.

It is difficult to predict in advance how courts may resolve Dormant Commerce Clause claims in this context, given the need to develop a robust record of the burdens and benefits of particular state laws and executive actions. But at a minimum, one can say that the various state initiatives are susceptible to a Dormant Commerce Clause challenge.

The FCC is correct that broadband is an inherently interstate service and that traffic management practices are best determined by a national regulator to control the spillover effects that would otherwise occur with state-level action. For states that insist upon taking that power into their own hands, pre-emption of state net neutrality laws or executive orders will be the first obstacle, and this is where the battle has been joined thus far. But even if the state actions survive a pre-emption challenge, the Dormant Commerce Clause doctrine will be yet another gauntlet that must be overcome in their quest to undermine the Restoring Internet Freedom Order.

Daniel A. Lyons, a professor of law at Boston College Law School, is a member of the Free State Foundation’s board of academic advisers.