Ninth Circuit Upholds Denial of Injunction Against California Net Neutrality Law

Update February 11, 2022: Appellants ACA, NCTA and CTIA jointly filed a Petition for Rehearing en banc.

On January 28, 2022, a panel of the Ninth Circuit Court of Appeals issued a ruling in ACA Connects v. Bonita, upholding the district court's denial of a preliminary injunction against the operation of California SB-822, which imposes "net neutrality" obligations on entities that provide broadband internet access service to California residents. The ruling means that California's net neutrality law is currently in full effect—although litigation over its permanent validity continues in the district court.

"Net neutrality" generally refers to rules that forbid broadband internet providers from blocking consumer access to any lawful websites, as well as from throttling (lowering data transmission rates when accessing) such sites. As we have detailed before, including here, here, and here, the on-again, off-again history of net neutrality rules at the federal level goes back at least 15 years.

The most recent Federal Communications Commission (FCC) action on net neutrality occurred in 2018, when the agency issued its Restoring Internet Freedom Order. In that order, the FCC ruled that broadband internet service is an "information service" under federal law and that as a result the FCC lacks the power to impose net neutrality rules on that service.

The Restoring Internet Freedom Order reversed the FCC's earlier Open Internet Order, from 2015, which had categorized broadband service as a "telecommunications service" and imposed net neutrality obligations on that basis. The 2018 order also articulated a broad federal policy against significant regulation of broadband providers, and sought to preempt any state law efforts to reimpose similar net neutrality rules and obligations.

In response to the Restoring Internet Freedom Order, California passed SB-822, which, as noted above, imposes net neutrality obligations on entities that provide broadband internet access service to California residents. California was seemingly directly defying the portion of the Restoring Internet Freedom Order that expressly stated that states were "preempted" from imposing net neutrality obligations.

However, while the Restoring Internet Freedom Order was largely upheld by the D.C. Circuit in the Mozilla case, that court invalidated the portion of the order that expressly preempted state regulation. The court reasoned that if the agency lacked statutory authority to regulate broadband, as the FCC itself had ruled, then it also lacked statutory authority to pass a rule preventing states from regulating it. The D.C. Circuit did, however, leave open the possibility that state regulation could nonetheless be preempted by federal law under theories of "conflict preemption"—that is, that the state law might conflict in practice with federal regulation (or deregulation) of broadband service.

Prior to the D.C. Circuit's ruling, industry groups, joined by the federal government under the Trump administration, challenged SB-822 on preemption grounds, and sought to enjoin the law's operation during the litigation. The district court refused to grant a preliminary injunction. Although the court did not issue a written opinion, reports of the argument suggested that the judge was persuaded by the same logic, noted above, that ultimately led the D.C. Circuit to invalidate the FCC's attempt to preempt state law.

The industry groups appealed the denial of the preliminary injunction against SB-822 to the Ninth Circuit.¹ The court of appeals affirmed the denial.

To obtain a preliminary injunction, a party must show, among other things, that it is likely to ultimately succeed on the merits in the underlying litigation. Here, industry's argument was that notwithstanding the logic of the D.C. Circuit's Mozilla ruling, the Restoring Internet Freedom Order actually did have the effect of barring California from passing its own net neutrality rules, pressing a range of conflict and field-preemption theories and arguing about the implications for state regulation of the still-binding portions of the Restoring Internet Freedom Order.

The Ninth Circuit rejected those arguments and instead followed what it saw to be the underlying rationale of the D.C. Circuit's decision in Mozilla: Because the Restoring Internet Freedom Order rests on the notion that the FCC lacks statutory authority to regulate broadband internet access service, the agency necessarily lacks the authority to bar states from regulating that service and reimposing net neutrality rules similar to those that the FCC had vacated.

The Ninth Circuit's ruling has no immediate effect on internet service in California: The operation of SB-822 had not been enjoined before this decision, and it is not enjoined now. Instead, litigation over the law will continue in the district court.²

It remains to be seen whether industry will try to craft arguments against the law that could support preemption in a manner consistent with the Ninth Circuit's ruling. As Judge Wallace stressed in his concurring opinion, the Ninth Circuit's decision in the preliminary injunction appeal does not necessarily mean that the plaintiffs will not eventually win the litigation and obtain a permanent injunction against SB-822.

At least in theory, for example, the plaintiffs could prove at trial that the actual operation of the law, based on how internet access is provided as a technical matter, would result in the imposition of significant or costly net neutrality obligations with respect to consumers outside of California—a so-called "dormant commerce clause" claim. Other "conflict preemption" claims might eventually convince the district court, too.

Moreover, while the Ninth Circuit ruling suggests that states are free to impose net neutrality obligations on broadband providers, some forms of state regulation—such as direct price regulation of broadband services—may still remain beyond the states' authority under federal law. In June 2021, for example, a federal district court enjoined the operation of a New York law that would have required broadband providers to offer discounted service to low-income consumers, reasoning, in essence, that broadband service is interstate in nature and that state-level rate regulation was inconsistent with the FCC's decision to treat broadband as an unregulated information service. This ruling, which is at least arguably inconsistent with the Ninth Circuit's ruling, has been appealed to the U.S. Court of Appeals for the Second Circuit.

Of course, all of this may be upended if the FCC reverses course yet again and imposes network neutrality obligations at the federal level—which it may well do once the Senate confirms a third Democratic member of the agency. That is expected sometime this year; and indeed, the Senate Commerce Committee is scheduled to vote on the nomination of Gigi Sohn later this week.

FOOTNOTES

1  The federal government withdrew from the case following the change of administration in early 2021.
2  Even though the denial of a preliminary injunction is not a final decision ending the litigation, the plaintiffs have the option of seeking rehearing en banc or even Supreme Court review of the issue.