On September 30, California Governor Jerry Brown signed a bill to apply net neutrality rules to Internet Service Providers (“ISPs”) operating in that state.  California is not the first state to enact legislation on net neutrality, but its bill contains the most stringent requirements yet.  The Trump Administration and multiple ISPs have sued to prevent the new law from going into effect, arguing that it conflicts with federal law.  The first hearing on the legal challenge will take place on November 14.

History of SB 822

The new “California Internet Consumer Protection and Net Neutrality Act of 2018” makes it unlawful for ISPs (including mobile ISPs) to block, throttle, or otherwise discriminate against lawful content delivered through their networks.  The bill was introduced by state Senator Scott Wiener (D-San Francisco) in response to the Federal Communications Commission’s (“FCC”) decision to largely repeal the 2015 Open Internet Order.  Like California’s new law, the Open Internet Order prohibited ISPs from blocking, throttling, or engaging in paid prioritization.  In 2017, the FCC  repealed these rules as part of its Restoring Internet Freedom Order(the “Order”), which was adopted on December 14, 2017 and became effective on June 11, 2018.

The Order classified ISPs as providers of “information services” under Title I of the Communications Act, instead of “telecommunications services” under Title II.  This reclassification placed ISPs back within the jurisdiction of the Federal Trade Commission (“FTC”).  The Order also expressly repealed the Obama-era rules regarding blocking, throttling, and paid prioritization, and declared that states are preempted from implementing any measures that would “impose more stringent requirements” than those addressed in the Order.

SB 822 Core Requirements

• No Blocking, Throttling, or Paid Prioritization.  Under SB 822, it is unlawful for an ISP to block lawful content or impair or degrade lawful Internet traffic based on content, with an exception for reasonable network maintenance.  The law also prohibits paid prioritization (i.e., when an ISP charges a fee to favor some data traffic over other traffic).  Further, SB 822 prohibits ISPs from charging edge providers “access fees” to reach customers.

• No Zero-Rating.  SB 822 goes beyond the Obama-era rules by prohibiting ISPs from engaging in discriminatory zero-rating of some content within a category of Internet content.  “Zero-rating” refers to the practice of not counting certain content against a plan’s data cap, which permits telecom companies to offer services to customers for free under certain conditions.  Under SB 822, companies generally may not engage in zero-rating.  However, in some circumstances, zero-rating in “application-agnostic” ways will be permitted (so long as no consideration is provided by any third party in exchange for the ISP’s decision whether to zero-rate traffic).

• Other Services Must Also Comply.  The California bill also makes it unlawful for ISPs to offer services “other than broadband Internet access services that are delivered over the same last-mile connection as the broadband Internet access service,” if the other services have the effect of evading any of the net neutrality standards.  These alternative services are also considered unlawful if they negatively affect the Internet service performance.

Other States’ Approach to Net Neutrality

Although three other states—Washington, Oregon, and Vermont—have already passed net neutrality laws, California’s law is the most stringent, adding provisions such as the zero-rating prohibition.  Washington’s net neutrality law does not prohibit zero-rating or prevent ISPs from imposing data caps.  Oregon’s and Vermont’s laws do not expressly place any net neutrality restrictions on ISPs—instead, they ban state agencies from contracting with ISPs that violate certain net neutrality standards.

Other states—Hawaii, Montana, New Jersey, New York, and Rhode Island—have executive orders in place that impose net neutrality limits on state contracts.  In addition, legislators in several other states have introduced their own forms of net neutrality legislation, or resolutions expressing disapproval of the FCC’s repeal of net neutrality rules.  Other states considered legislation but concluded that federal law prevented meaningful state action.  Massachusetts, for example, convened a Special Senate Committee on Net Neutrality and Consumer Protection, which issued a report recommending legislation.  That legislation has not come to pass.

What’s Next

SB 822 is scheduled to go into effect on January 1, 2019.  In the meantime, the conversation on net neutrality will continue as California defends its bill in court and the FCC’s Order faces its own legal challenge.

The Department of Justice (“DOJ”) filed a lawsuit against California hours after the bill was signed, arguing that SB 822 is preempted by the FCC’s Restoring Internet Freedom Order and prohibited under the Commerce Clause of the Constitution.  A hearing on DOJ’s request for a preliminary injunction against the new law is scheduled for November 14.  The State will file its opposition by October 19, and DOJ will file its reply by November 2.  On October 3, four associations representing Internet Service Providers also filed a lawsuit challenging the legality of SB 822.

Meanwhile, the attorneys general of twenty-two states filed a new brief on August 20 in their lawsuit against the FCC, arguing that the court should vacate and reverse the FCC’s Restoring Internet Freedom Order.  Technology companies such as Mozilla, Vimeo, and Etsy, also filed a brief in the lawsuit.  The FCC will file its brief this month.