American Cable Association et al v. Scott et al
Filing
1
COMPLAINT against Philip B. Scott, June E. Tierney, John J. Quinn, III, Susanne R. Young filed by American Cable Association, CTIA - The Wireless Association, New England Cable & Telecommunications Association, USTelecom - The Broadband Association, NCTA - The Internet & Television Association.Summonses issued. LR 73 Forms issued. (Attachments: #1 Exhibit 1, #2 Exhibit 2, #3 Exhibit 3, #4 Exhibit 4, #5 Exhibit 5, #6 Civil Cover Sheet)(law)
Case 2:18-cv-00167-jmc Document 1 Filed 10/18/18 Page 1 of 39
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF VERMONT
AMERICAN CABLE ASSOCIATION, CTIA
- THE WIRELESS ASSOCIATION, NCTATHE INTERNET & TELEVISION
ASSOCIATION, NEW ENGLAND CABLE
& TELECOMMUNICATIONS
ASSOCIATION, and USTELECOM - THE
BROADBAND ASSOCIATION, on behalf of
their members,
Case No.
2918 OCT 18 PH 2: 31
_2 ~ \6 ·CV ' lbI
Plaintiffs,
V.
PHILIP B. SCOTT, in his official capacity as
the Governor of Vermont; SUSANNE R.
YOUNG, in her official capacity as the
Secretary of Administration; JOHN l QUINN
III, in his official capacity as the Secretary and
Chief Information Officer of the Vermont
Agency of Digital Services; and JUNE E.
TIERNEY, in her official capacity as the
Commissioner of the Vermont Department of
Public Service;
Defendants.
COMPLAINT
Plaintiffs American Cable Association ("ACA"), CTIA - The Wireless Association
("CTIA"), NCTA - The Internet & Television Association (''NCTA"), New England Cable &
Telecommunications Association (''NECTA"), and USTelecom - The Broadband Association
("US Telecom," and collectively with ACA, CTIA, NCTA, and NECTA, the "Associations") bring
this suit on behalf of their members for declaratory judgment and injunctive relief against
Defendant Philip B. Scott, in his official capacity as the Governor of Vermont, Susanne R. Young,
in her official capacity as the Secretary of Administration, John J. Quinn III, in his official capacity
Case 2:18-cv-00167-jmc Document 1 Filed 10/18/18 Page 2 of 39
as the Secretary and Chief Information Officer of the Vermont Agency of Digital Services, and
June E. Tierney, in her official capacity as the Commissioner of the Vermont Department of Public
Service (collectively, "Defendants"), stating as follows:
NATURE OF THE CASE
1.
This case concerns two interrelated attempts by the State of Vermont to
unconstitutionally regulate the provision of broadband Internet service. Specifically, Vermont's
Senate Bill 289, Ex. 1 (''S. 289"), and Vermont Executive Order No. 2-18, Ex. 2 ("Executive
Order"), impose broad obligations that the Federal Communications Commission's ("FCC") 2018
Restoring Internet Freedom Order and the federal Communications Act of 1934, as amended (the
"Communications Act"), prohibit states from imposing. The Executive Order and S. 289 are
therefore preempted under the Supremacy Clause of the United States Constitution. The Executive
Order and S. 289 are unconstitutional for the additional reason that they regulate outside the
borders of the State of Vermont and burden interstate commerce in violation of the dormant
Commerce Clause of the United States Constitution. As the FCC has repeatedly recognized,
Internet traffic flows freely between states, making it difficult or impossible for a provider to
distinguish traffic moving within Vermont from traffic that crosses state borders.
Both the
Supremacy Clause and the dormant Commerce Clause protect broadband Internet service
providers ("ISPs") from a patchwork of inconsistent regulations that are impossible for them to
comply with as a practical matter. The Court should declare that the Executive Order and S. 289
are preempted and unconstitutional, and should permanently enjoin the Defendants from enforcing
or giving effect to them.
2.
After careful review and deliberation, the FCC recently adopted the 2018 Restoring
Internet Freedom Order, which established "a calibrated federal regulatory regime" for mass-
2
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market broadband Internet access service ("BIAS") "based on the pro-competitive, deregulatory
goals of the 1996 [Telecommunications] Act." Restoring Internet Freedom, Declaratory Ruling,
Report and Order, and Order, 33 FCC Red. 311
~
194 (2018) ("2018 Order"); see also Notice of
Final Rule and Announcement ofEffective Date, 83 Fed. Reg. 21,927 (May 11, 2018) (announcing
effective date of 2018 Order as June 11, 2018). The 2018 Order protects Internet openness with a
regime of transparency and disclosure rather than heavy-handed regulations. Pursuant to that
regime, the Associations' members, either on their own or through their Associations, have made
public commitments to preserve core principles oflnternet openness. See, e.g., 2018 Order~ 142
(collecting examples of members' commitments). Those commitments, as the FCC explained, are
fully enforceable by the Federal Trade Commission ("FTC") and state attorneys general under
federal and state unfair and deceptive trade practices laws (provided they enforce such
commitments in a manner consistent with federal law). See id.
242. "Transparency thus leads to openness," id.
~
~~
142, 196, 244; see also id.
~
245, and the Internet has remained free and open
since the adoption of the 2018 Order, just as it was under the longstanding light-touch approach
that applied for most of the Internet's history.
3.
The 2018 Order also determined that BIAS, like all other broadband Internet
services, 1 is an inherently interstate "information service." Id. ~~ 20, 199. In so doing, the 2018
Order restored the longstanding position that the FCC (on a bipartisan basis) and the courts had
adhered to for decades. The 2018 Order thereby reversed a 2015 FCC ruling, see Protecting and
Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30
1
This Complaint uses the term "broadband Internet service" to refer to any broadband service that
provides access to the Internet and that is offered by an Internet service provider ("ISP"). The
term encompasses not only mass-market broadband Internet access services sold to residential and
small business customers (which the FCC refers to as "BIAS"), but also enterprise broadband
Internet services sold to government agencies and large businesses.
3
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FCC Red. 5601 , 431 (2015) ("2015 Order"), that BIAS should be regulated as a common carrier
"telecommunications service" under the Communications Act. The 2018 Order similarly restored
the FCC's longstanding determination that wireless BIAS is not a "commercial mobile service"
under the Communications Act and therefore is statutorily immune from common carrier
regulation. 2018 Order, 74. Here, too, the FCC reversed a 2015 ruling, see 2015 Order, 388,
that mass-market wireless BIAS should be regulated as a common carrier commercial mobile
service.
4.
Based on the disclosure regime and these statutory classifications, the FCC repealed
certain "net neutrality" rules and regulations that were adopted in the 2015 Order and predicated
on the classification of BIAS as a common carrier service. The 2015 Order had imposed four basic
forms of conduct regulation on the provision of BIAS that are relevant to this case: a no-blocking
rule, a no-throttling rule, a no-paid-prioritization rule, and a general "Internet Conduct Standard."
The 2018 Order repealed each of these measures based on federal law and policy mandating a
light-touch regulatory approach to BIAS. See 2018 Order ,, 1-5. The FCC also revised its
longstanding "transparency rule" to specifically require ISPs to disclose blocking, throttling, and
other practices to protect Internet openness through a policy of disclosure. Id ,, 220-223.
5.
In addition to reclassifying (and thereby reestablishing) fixed and mobile BIAS as
services statutorily immune from common carrier regulation and repealing the above-described
rules and regulations, the 2018 Order included a broadly worded express preemption directive,
making clear that the 2018 Order "preempt[ s] any state or local measures that would effectively
impose rules or requirements that [the FCC has] repealed or decided to refrain from imposing in
this order or that would impose more stringent requirements for any aspect of broadband service"
addressed in the 2018 Order. Id, 195 (emphases added). Notably, the primacy of federal law in
4
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this "inherently" "jurisdictionally interstate" context is one of the few points on which the 2018
Order and 2015 Order agree: both decisions "preclude[ d] states from imposing obligations on
broadband services that are inconsistent with the carefully tailored [federal] regulatory scheme."
2015 Order~~ 431,433; see 2018 Order~~ 194-195, 200.
6.
Notwithstanding the 2018 Order's binding legal rulings and clear preemptive
effect, the Governor issued the Executive Order and the State enacted S. 289, which, by their own
terms, are deliberately intended to replicate the rules the FCC repealed in the 2018 Order and
thereby effectively nullify federal law. The Executive Order and S. 289 thus impose pervasive
common-carrier net neutrality mandates on an ISP at the moment it signs a service contract with
the State. These contracts include agreements with a wide array of State entities, and each of the
Associations have members that currently and routinely enter and maintain such contracts with
such entities in Vermont. See S. 289 §§ 4 (applying to contracts with "agencies of the Executive
Branch"), 5 (applying to contracts with "the Legislative Branch"), 6 (applying to contracts with
''the Judicial Branch"); E.O. ~~ I (applying to "[a]ll State Agency contracts"), I.D. (defining "State
Agency" to "include all State agencies, departments, commissions, committees, authorities,
divisions, boards or other administrative units of the Executive Branch"). Moreover, the Executive
Order goes even further than the FCC's repealed rules. The 2015 Order reclassified and regulated
only BIAS, that is, only mass-market broadband Internet access sold to residential and small
business customers. But the Executive Order applies not only to ISPs' provision of BIAS, but also
to their provision of enterprise Internet access services sold to government agencies and large
businesses. Thus, the Executive Order not only imposes the net neutrality obligations that the FCC
repealed in the 2018 Order, but also expands those obligations to reach all broadband Internet
5
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services offered by ISPs contracting with the State, including those the FCC chose not to subject
to such mandates.
7.
Vermont's attempts to revive and, indeed, expand a repealed regulatory regime are
plainly preempted by federal law-an outcome that, as discussed below, members of the Vermont
government specifically brought to the attention of the Vermont General Assembly and the
Governor before they adopted these measures, but that they disregarded in moving forward with
these actions. Under the Supremacy Clause of the United States Constitution, U.S. Const. art. VI,
cl. 2, state measures that contravene validly adopted federal laws and policy determinations,
including those contained in FCC orders, are preempted and have no force or effect. Here, that
preemption applies for at least two distinct reasons.
8.
First, the 2018 Order expressly preempts Executive Order and S. 289. Given the
inherently interstate nature of BIAS, the FCC has consistently determined that BIAS must be
governed "by a uniform set offederal regulations, rather than by a patchwork that includes separate
state and local requirements." 2018 Order ,-i 194; see also 2015 Order ,-i 433 (ruling that BIAS
must remain subject to "a comprehensive regulatory framework" at the national level that
"preclude[ s] states from imposing obligations on broadband service that are inconsistent with the
[FCC's] carefully tailored regulatory scheme"). Disparate state and local requirements could
"significantly disrupt the balance" struck by federal law and "impair the provision of [BIAS] by
requiring each ISP to comply with a patchwork of separate and potentially conflicting requirements
across all the different jurisdictions in which it operates." 2018 Order ,-i 194. This is already
happening-several states have adopted or are in the process of adopting different and potentially
incongruous net neutrality requirements, which are consistent only in their disregard for the
primacy of federal law. And given the ambiguity inherent in many of the requirements, state
6
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agencies and courts inevitably will interpret these requirements differently and further perpetuate
their incongruity. The FCC expressly found that such state and local efforts to regulate in this area
"could pose an obstacle to or place an undue burden on the provision of broadband Internet access
service and conflict with the deregulatory approach" adopted in the 2018 Order. Id. 1195. The
Executive Order and S. 289 unquestionably constitute state measures that "impose rules or
requirements that [the FCC has] repealed or decided to refrain from imposing" and thus are
expressly preempted by federal law. Id. They likewise stand as an obstacle to the federal policy
of reducing regulation of BIAS and thus are invalid under conflict preemption principles and
precedent as well.
9.
Second, the Communications Act itself also preempts the Executive Order and S.
289 because they impose impermissible common carrier regulations-that is, categorical bans
affecting how providers offer service that leave "no room at all for individualized bargaining."
Verizon v. FCC, 740 F.3d 623,658 (D.C. Cir. 2014). The Communications Act expressly prohibits
the imposition of common carrier obligations on providers of information services and on
providers of private mobile services. See id. at 650 (citing 47 U.S.C. §§ 153(51), 332(c)(l)(A)). 2
That is why, prior to the 2015 Order, the D.C. Circuit invalidated some of the same requirements
that Vermont seeks to impose here when the FCC applied them to such non-common-carrier
services. See Verizon, 740 F.3d at 650. It is also why the FCC's adoption of these and other
requirements in its now-rescinded 2015 Order was predicated on classifying BIAS as a common
carrier telecommunications service. See 2015 Order 11307-308. That predicate no longer applies
because the 2018 Order restored the longstanding classification of BIAS as an information service,'
2
"Private mobile services" are those mobile services that are not "commercial mobile radio
services" as defined by the Communications Act and the FCC. 47 U.S.C. § 332(d).
7
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and of mobile BIAS as a private mobile service. As the Eighth Circuit recently reiterated, "'any
state regulation of an information service conflicts with the federal policy of nonregulation,' so
that such regulation is preempted by federal law." Charter Advanced Servs. (MN), LLC v. Lange,
--- F.3d ---, No. 17-2290, 2018 WL 4260322, at *2 (8th Cir. Sept. 7, 2018) (quoting Minn. Pub.
Utils. Comm 'n v. FCC, 483 F.3d 570, 580 (8th Cir. 2007)). Thus, the Executive Order and S. 289
impermissibly impose common carrier regulations on services that are statutorily exempt from
such regulation. The Executive Order further conflicts with the FCC's determinations in prior
orders-which the 2015 Order did not alter-that all other broadband Internet services (such as
those sold to government agencies and large business customers) are information services and,
when offered by wireless ISPs, are also private mobile services. See 2015 Order ,r,r 189-190.
10.
The State cannot escape the preemptive force of the 2018 Order and federal law
more broadly by claiming that it is merely exercising its spending power like any private market
participant. The Executive Order and S. 289 expressly regulate ISPs' provision of service to all
customers throughout the State, not just to government customers and contracts. Controlling
judicial precedent holds that states may not escape federal preemption by regulating indirectly
through their spending, procurement, or other commercial powers what they are forbidden from
regulating directly. Indeed, if states were permitted to circumvent federal preemption in this
manner, they would have a free hand to use their spending powers to undermine established federal
law on virtually any topic-including civil rights, religious freedom, and a variety of other issues.
Thus, this Court should declare the Executive Order and S. 289 unconstitutional under the
Supremacy Clause of the United States Constitution and enjoin Defendants from enforcing or
giving effect to the Executive Order and S. 289.
8
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11.
Finally, the Executive Order and S. 289 violate the "dormant" or "negative"
Commerce Clause of the United States Constitution by regulating conduct occurring wholly
outside Vermont's borders. Specifically, the Executive Order and S. 289 regulate Internet services
that involve overwhelmingly interstate communications, which the FCC has found cannot
practically be separated from rare instances of purely intrastate electronic communications.
Moreover, the Executive Order, on its face, is not limited to ISPs' dealings with Vermont
customers. The Executive Order and S. 289 also violate the "dormant" or "negative" Commerce
Clause because they impose burdens on interstate commerce that far outweigh any purported
benefits to Vermont by re-imposing rules that the FCC expressly found to harm interstate
commerce and to offer no net benefits.
JURISDICTION AND VENUE
12.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 because the
Associations' claims arise under the laws of the United States, including the Communications Act,
the 2018 Order, 42 U.S.C. § 1983, and the Supremacy and Commerce Clauses of the United States
Constitution. This Court has equitable jurisdiction to enjoin unconstitutional action. Armstrong
v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1384 (2015).
13.
Because an actual controversy within the Court's jurisdiction exists, this Court may
grant declaratory and injunctive relief pursuant to the Declaratory Judgment Act, 28 U.S.C.
§§ 2201-2202.
14.
Venue is proper in the District of Vermont, pursuant to 28 U.S.C. § 139l(b),
because the events and omissions giving rise to the Associations' claims occurred in Vermont.
9
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PARTIES
15.
Plaintiff ACA is a trade association of small and medium-sized cable companies in
the United States. Many of ACA's members are small, family-owned businesses that have served
their communities for decades. Multiple ACA members offer broadband Internet services to
households, businesses, and governmental entities in Vermont.
16.
Plaintiff CTIA is a non-profit association that represents the wireless
communications industry. Members of CTIA include wireless broadband ISPs operating in the
·State of Vermont and throughout the county, as well as providers of other wireless services, device
manufacturers, and other wireless industry participants.
17.
Plaintiff NCTA is the principal national trade association of the cable industry in
the United States. Its members include cable providers offering broadband Internet services to
households, businesses, and governmental entities throughout the country, including in Vermont.
18.
Plaintiff NECTA is a regional trade association representing cable providers in
Vermont, Connecticut, Massachusetts, New Hampshire, and Rhode Island. Several ofNECTA's
members offer broadband Internet services to households, businesses, and governmental entities
throughout that five-state region, including Vermont.
19.
Plaintiff USTelecom is a non-profit association of service providers and suppliers
for the telecommunications industry. Its members provide broadband Internet services, including
BIAS and new Internet Protocol-based services over fiber-rich networks, to millions of consumers
and businesses across the country, including in Vermont.
20.
The Associations have standing to bring the claims asserted in this Complaint on
behalf of their members because (a) the subject matter of this suit is germane to the Associations'
purpose; (b) members of the Associations would have standing on their own to bring these claims,
10
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given the substantial harms that members face if the invalid and unconstitutional state measure at
issue here were to be enforced; and (c) neither the claims asserted, nor the relief requested, requires
the participation of the Associations' individual members in this lawsuit.
21.
Defendant Philip B. Scott is the Governor of Vermont. Pursuant to Chapter II,
Section 20 of the Vermont Constitution, the Governor is vested with the chief executive power of
the State and is "to take care that the laws be faithfully executed." Defendant Scott signed and
issued Executive Order 2-18, which is one subject ofthis action. He is also ultimately responsible
for enforcing S. 289. He is the head of the State of Vermont's executive branch, to which both the
Executive Order and S. 289 apply. He is sued in his official capacity only.
22.
Defendant Susanne R. Young is the Secretary of Administration of the State of
Vermont. Pursuant to ,r,r II, III, and IV of the Executive Order, she, and the agency she heads, are
responsible for implementing the Executive Order by amending the State's Procurement and
Contracting Procedures to comport with the Executive Order, granting any waivers from
compliance with the Executive Order, and granting approval to State agencies to procure Internet
services in compliance with the Executive Order. Pursuant to §§ 2, 4, 5, 6, and 7 of S. 289, she
also manages the process whereby ISPs certify that they meet S. 289's requirements, and such
certification is required to contract with the State of Vermont. She is sued in her official capacity
only.
23.
Defendant John J. Quinn III is the Secretary and Chief Information Officer of the
Vermont Agency of Digital Services. Pursuant to ,r,r IV and V of the Executive Order, he, and the
agency he heads, are responsible for implementing the Executive Order by granting approval to
State agencies to procure Internet services in compliance with the Executive Order and advising
the Governor on additional actions to further the purposes of the Executive Order. Pursuant to§ 4
11
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of S. 289, the agency he heads is responsible for ensuring that contracts with State entities contain
terms and conditions requiring that an ISP certify its compliance with S. 289. He is sued in his
official capacity only.
24.
Defendant June E. Tierney is the Commissioner of the Vermont Department of
Public Service. Pursuant to ,i,i III and V of the Executive Order, she, and the agency she heads,
are responsible for implementing the Executive Order by "resolv[ing] any dispute over the
definition of terminology used in [the] Executive Order" and advising the Governor on additional
actions to further the purposes of the Executive Order. She is sued in her official capacity only.
STATEMENT OF FACTS
The Associations' Members
25.
The Associations' members provide broadband Internet services m Vermont,
including both mass-market and enterprise broadband Internet services. Those members also
provide broadband Internet services to government entities in Vermont, and either have bid (since
the effective date of the Executive Order) or intend to bid on contracts with State entities to provide
such services in the future.
26.
These members provide broadband Internet services in Vermont (and throughout
the country) using extensive wired and wireless networks that enable the routing of data packets
along dynamic paths without regard for state or even national boundaries. It is "well-settled" that
the broadband Internet services the Associations' members offer are "jurisdictionally interstate
service[s] because 'a substantial portion oflnternet traffic involves accessing interstate or foreign
websites."' 2018 Order ,J 199 (quoting Bell At!. Tel. Cos. v. FCC, 206 F.3d 1, 5 (D.C. Cir. 2000));
see also id. ,i,i 199-200 (collecting cites to extensive prior FCC and judicial precedent in support).
"Because both interstate and intrastate communications can travel over the same Internet
12
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connection (and indeed may do so in response to a single query from a consumer), it is impossible
or impracticable for ISPs to distinguish between intrastate and interstate communications over the
Internet or to apply different rules in each circumstance." Id
1200.
Federal Law Governing Broadband Internet Service
27.
The provision of broadband Internet service in general-and the issue of net
neutrality in particular-have long been the focus of substantial regulatory interest and activity at
the federal level. That is as it should be, given the inherently interstate nature of Internet service.
For many years before 2015, the FCC repeatedly made clear that broadband Internet service is
properly classified as an interstate information service free from common-carrier-style regulation.
See, e.g., In re GTE Telephone Operating Cos., Memorandum Opinion and Order, 13 FCC Red.
22466 11 16-19 ( 1998); Inquiry Concerning High-Speed Access to the Internet Over Cable and
Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Red. 4798
11 38-39
(2002); Appropriate Framework for Broadband Access to the Internet Over Wireline
Facilities, Report and Order and Notice of Proposed Rulemaking, 20 FCC Red. 14853112 (2005);
United Power Line Council's Petition for Declaratory Ruling Regarding the Classification of
Broadband Over Power Line Internet Access Service as an Iriformation Service, Memorandum
Opinion and Order, 21 FCC Red. 13281 (2006); Appropriate Regulatory Treatment for Broadband
Access to the Internet Over Wireless Networks, Declaratory Ruling, 22 FCC Red. 5901 (2007); see
also National Cable & Telecomms. Ass 'n v. Brand X Internet Servs., 545 U.S. 967, 1003 (2005)
(upholding the FCC's 2002 determination that broadband Internet access service is an information
service).
28.
The 2015 Order. In 2015, the FCC temporarily deviated from that longstanding
classification of BIAS as an information service when it adopted the 2015 Order, which
13
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reclassified only "mass-market retail" BIAS-but not enterprise broadband Internet services sold
to government agencies and large business customers-as an interstate ''telecommunications
service." 2015 Order 1125, 189. The FCC simultaneously reclassified mobile "mass-market
retail" BIAS-and, again, not other mobile broadband Internet services, such as those sold to
government agencies and enterprise customers-as a "commercial mobile service." With these
changes to then-existing law, the FCC was able to subject mass-market fixed and mobile BIAS to
common carrier regulation. Exercising that newly created authority, it did just that, adopting a set
of net neutrality regulations governing BIAS providers. The regulations included the following
three so-called "bright-line" rules:
•
No blocking: "A person engaged in the provision of broadband Internet access
service, insofar as such person is so engaged, shall not block lawful content,
applications, services, or nonharmful devices, subject to reasonable network
management." 2015 Order 115.
•
No throttling: "A person engaged in the provision of broadband Internet access
service, insofar as such person is so engaged, shall not impair or degrade lawful
Internet traffic on the basis of Internet content, application, or service, or use of a
non-harmful device, subject to reasonable network management." Id. 116.
•
No paid prioritization: "A person engaged in the provision of broadband Internet
access service, insofar as such person is so engaged, shall not engage in paid
prioritization.
'Paid prioritization' refers to the management of a broadband
provider's network to directly or indirectly favor some traffic over other traffic,
including through use of techniques such as traffic shaping, prioritization, resource
reservation, or other forms of preferential traffic management, either (a) in
14
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exchange for consideration (monetary or otherwise) from a third party, or (b) to
benefit an affiliated entity." Id. 1 18.
29.
The FCC also adopted a general "Internet Conduct Standard," which stated: "Any
person engaged in the provision of broadband Internet access service, insofar as such person is so
engaged, shall not unreasonably interfere with or unreasonably disadvantage (i) end users' ability
to select, access, and use broadband Internet access service or the lawful Internet content,
applications, services, or devices of their choice, or (ii) edge providers' ability to make lawful
content, applications, services, or devices available to end users. Reasonable network management
shall not be considered a violation of this rule." Id. 121. The 2015 Order expressly acknowledged
that the Internet Conduct Standard, together with the bright-line rules noted above, constituted
common carrier regulation. Id. 11288-96.
30.
The FCC supplemented these common carrier regulations with rules intended to
ensure that Internet access service providers are transparent about their network management
practices and terms of service. To that end, the 2015 Order left in place transparency requirements
first adopted in 2010, though the FCC added certain non-codified "enhancements" to the
requirements. See id.
1 23
("A person engaged in the provision of broadband Internet access
service shall publicly disclose accurate information regarding the network management practices,
performance, and commercial terms of its broadband Internet access services sufficient for
consumers to make informed choices regarding use of such services and for content, application,
service, and device providers to develop, market, and maintain Internet offerings."); id.
1 24
(describing the enhancements).
31.
The 2018 Order. In 2017, the FCC reexamined this departure from its historical
approach to the Internet and adopted the 2018 Order, which restored the pre-2015 classification of
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BIAS as an interstate "information service," as well as the pre-2015 classification of mobile BIAS
as a "private mobile service."
Relying on both the Communications Act, which precludes
subjecting these services to common carrier regulation, and an in-depth analysis of the public
interest, it repealed the so-called bright-line rules in the 2015 Order on blocking, throttling, and
paid prioritization, as well as the Internet Conduct Standard. See 2018 Order ,r,r 239, 246-267. In
lieu of these requirements, the 2018 Order revised the transparency rule to expressly require that
BIAS providers publicly and clearly disclose any blocking, throttling, paid prioritization, or
affiliated prioritization. Id. ,i 220. The FCC preserved the core requirement that ISPs disclose key
terms relating to broadband performance, commercial terms, and network management, see id. ,i
115, while rescinding certain "enhancements" that the 2015 Order had imposed, such as the
requirement that most ISPs disclose highly technical performance characteristics, which the FCC
determined would not be useful to consumers, see id. ,i,i 214-215, 221-222.
32.
The FCC further determined that the FTC has both the authority and capability to
"enforce any commitments made by ISPs regarding their network management practices,"
including the net neutrality commitments the Associations and their members had made publicly.
Id. ,i 141 (citing 15 U.S.C. § 45(a)). It further noted that federal antitrust laws, enforceable by both
the FTC and Department of Justice, provide additional protections. See id. ,i 143. Thus, the FCC
concluded that "the [revised] transparency rule," "in combination with the state of broadband
Internet access service competition and the antitrust and consumer protection laws, obviates the
need for conduct rules by achieving comparable benefits at lower cost." Id. ,i 239.
33.
The 2018 Order further reaffirmed the FCC's longstanding (and bipartisan)
determination that broadband Internet service is inherently interstate and must be governed by "a
uniform set offederal regulations, rather than by a patchwork that includes separate state and local
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requirements." 2018 Order ,r 194. Indeed, the FCC has long confirmed its "preemption authority
to preclude states from imposing obligations on broadband service that are inconsistent with the
[FCC's] carefully tailored regulatory scheme." 2015 Order ,r 433. Federal courts have likewise
affirmed that broadband Internet service is an "'interstate and foreign communication by wire'
within the meaning of Title I of the Communications Act," Comcast Corp. v. FCC, 600 F.3d 642,
646-47 (D.C. Cir. 2010) (quoting 47 U.S.C. § 152(a)), thereby subject to the "centraliz[ed]
authority" of the FCC, 47 U.S.C. § 151.
34.
Building on its long-held position, the FCC explained in the 2018 Order that it was
establishing "a calibrated federal regulatory regime [for broadband] based on the pro-competitive,
deregulatory goals of the 1996 Act." 2018 Order ,r 194. Allowing state and local governments to
adopt their own separate, and more burdensome, requirements for broadband service, the FCC
explained, could "significantly disrupt the balance" struck by federal law and "could impair the
provision of such service by requiring each ISP to comply with a patchwork of separate and
potentially conflicting requirements across all the different jurisdictions in which it operates." Id
35.
Accordingly, and central to this suit, the FCC included a broadly worded, express
preemption provision in the 2018 Order. That provision states that the 2018 Order "preempt[ s]
any state or local measures that would effectively impose rules or requirements that [the FCC has]
repealed or decided to refrain from imposing in this order or that would impose more stringent
requirements for any aspect of broadband service" addressed in that order, 2018 Order
,r 195
(emphases added), "includ[ing] any state laws that would require the disclosure of [BIAS]
performance information, commercial terms, or network management practices in any way
inconsistent with the transparency rule adopted" by the 2018 Order, id.
,r
195 n.729.
This
preemption is necessary, the FCC explained, because state efforts to regulate in this area "could
17
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pose an obstacle to or place an undue burden on the provision of broadband Internet access service
and conflict with the deregulatory approach" adopted in the 2018 Order. Id. Indeed, even the
2015 Order determined "that broadband Internet access service is jurisdictionally interstate for
regulatory purposes," 2015 Order, 431-as the 2018 Order reaffirmed, see 2018 Order, 199and admonished states not to "frustrate federal broadband policies," 2015 Order, 433.
36.
The 2018 Order carries the weight of the Supremacy Clause. The Supreme Court
has long recognized that "[f]ederal regulations have no less pre-emptive effect than federal
statutes," Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982), and that "a
federal agency acting within the scope of its congressionally delegated authority may pre-empt
state regulation and hence render unenforceable state or local laws that are otherwise not
inconsistent with federal law," City of New York v. FCC, 486 U.S. 57, 63-64 (1988) (internal
quotation marks omitted). Moreover, a federal determination that an area is best left "unregulated"
carries "as much pre-emptive force as a decision to regulate." Ark. Elec. Co-op. v. Ark. Pub. Serv.
Comm 'n, 461 U.S. 375, 384 (1983) (emphasis in original); see also Geier v. Am. Honda Motor
Co., 529 U.S. 861, 883-84 (2000) (federal determination that statutory objectives, including
promoting innovation, were best achieved through less rather than more regulation constituted a
substantive determination with preemptive force); Minn. Pub. Utils. Comm 'n. v. FCC, 483 F.3d
570, 580 (8th Cir. 2007) (recognizing that "deregulation" is a "valid federal interest[] the FCC may
protect through preemption of state regulation"). States thus must respect, and not flout, the 2018
Order's policy determinations regarding the proper regulatory status of BIAS and its preemption
provision, just like any other federal law.
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Executive Order No. 2-18
37.
On February 15, 2018, Governor Scott signed Vermont Executive Order No. 2-18,
which provides that "[a]ll State Agency contracts with Internet service providers shall include net
neutrality protections, and specifically state that Internet service providers shall not" engage in
blocking, throttling, or paid prioritization, using language substantially similar to the 2015 Order
rules that the FCC repealed in the 2018 Order. E.O. ,, I.A-LC. The Executive Order also requires
that all State agency contracts for broadband Internet services include a provision that replicates,
almost verbatim, the "Internet Conduct Standard" repealed by the 2018 Order. Id, I.D. In fact,
the Executive Order appears to impose a broader version of the Internet Conduct Standard than
the 2015 Order, which provided that "[r]easonable network management shall not be considered a
violation," 2015 Order , 136-an exception the Executive Order lacks, see E.O.
,1.n.
Additionally, whereas the 2015 Order identified a set of "factors" to guide the application of the
Internet Conduct Standard, see 2015 Order,, 138-145, the Executive Order omits those factors
and provides no indication of how the State intends to apply the standard, see E.O., I.D.
38.
In his press statement accompanying the signing of the Executive Order, Governor
Scott made clear that the Executive Order is intended to reinstate the net neutrality regulations that
the FCC repealed: "I did not support the Federal Communications Commission's decision to
repeal net neutrality, but we can take steps here in Vermont to uphold these values." Governor
Signs Order to Protect Net Neutrality, Legislators Say It Doesn't Do Enough, ST. ALBANS
MESSENGER,
39.
Feb. 16, 2018, at AS.
The restrictions the Executive Order imposes are not limited to an ISP's provision
of broadband Internet service pursuant to a specific government contract, but instead require that
ISPs comply with the Executive Order's net neutrality requirements in the provision of all "Internet
19
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services" to "any Internet customer." See, e.g., E.O.
,r LC; see also id. ,r,r I.A, LB, I.D (applying
conditions to the provision of service to "customers" in general, without limiting the conditions to
government customers); id., pmbl. (reciting a desire to ensure an open Internet for "Vermonters"
generally).
40.
The Executive Order became effective upon its signing. E.O. ,r VII. The Executive
Order also provided that "[a]s soon as practicable, but in no event later than April 1, 2018, the
Agency of Administration shall amend the State's Procurement and Contracting Procedures as
necessary and appropriate to comply with this directive." Id.
,r II.
The Agency of Administration
released such amendments on March 29, 2018, specifically requiring that "[t]he language set forth
in Executive Order No. 2-18 must be included in all state contracts with Internet service providers."
State of Vermont, Information Technology Procurement Guideline at 42-43 (rev. Mar. 29, 2018),
available at http://bit.ly/2JcFyL4.
S.289
41.
On May 12, 2018, the Vermont General Assembly passed S. 289, and on May 22,
2018, the Governor signed S. 289 into law. Similar to the Executive Order, S. 289 imposes net
neutrality requirements on ISPs as a condition of obtaining State contracts for the provision of
BIAS. See S. 289 §§ 3-7. In a letter to legislators following his signing of S. 289, Governor Scott
stated that S. 289 "solidifies the State's policy interest" that was "previously addressed in the
Executive Order [he] issued in February." Letter from Vermont Gov. Philip B. Scott to Vermont
General Assembly, May 22, 2018, at 1, Ex. 3 ("Scott Letter").
42.
Specifically, under S. 289, the Secretary of Administration must develop a process
for ISPs to certify that they meet "net neutrality standards" that are nearly identical to those in the
now-repealed 2015 Order. See S. 289 § 2. To receive a "certificate of net neutrality compliance,"
20
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the ISP must "demonstrate[]" to the Secretary that, among other things, it does not engage in
blocking, throttling, or paid prioritization in Vermont, and that it adheres to a standard that
replicates the FCC's repealed Internet Conduct Standard.
See id
Additionally, to receive
certification, the ISP must publicly disclose to consumers information regarding its "network
management practices, performance, and commercial terms of its broadband Internet access
services." Id. An ISP may contract with State entities only if the contract "contains terms and
conditions requiring that the Internet service provider certify that it is in compliance with ...
[these] net neutrality standards." Id §§ 3-6. Notably, S. 289 goes further in this respect than the
Executive Order, as S. 289 imposes those conditions not only on contracts with State agencies
under the Executive Branch, but also on contracts with the Legislative and Judicial Branches.
Compare id. §§ 4 (applying to contracts with "agencies of the Executive Branch"), 5 (applying to
contracts with "the Legislative Branch"), 6 (applying to contracts with "the Judicial Branch"), with
E.O. ,r,r I (applying to "[a]ll State Agency contracts"), I.D. (defining "State Agency contracts" as
those under the Executive Branch).
43.
As with the Executive Order, S. 289 imposes restrictions and requirements that are
not limited to an ISP's provision of service pursuant to a particular government contract. Instead,
to receive certification, the ISP must demonstrate that it "does not engage in any of [S. 289's
prohibited practices] in Vermont." S. 289 § 2 (emphasis added). Thus, in order to contract with
the State of Vermont, an ISP must comply with S. 289's requirements when providing service to
any customer in Vermont-not just when serving a government customer.
44.
S. 289 became effective on July 1, 2018. Id § 7. Its requirements "apply to all
government contracts for Internet service entered into or renewed on or after either April 15, 2019
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or the date on which the Governor's Executive Order No. 2-18 [] is revoked and rescinded,
whichever is earlier." Id. A challenge to both measures is proper now.
Executive Order No. 2-18 and S. 289 Are Preempted
45.
The admitted purpose and effect of the Executive Order and S. 289 is to reinstate
the rules and policies the FCC had adopted in the 2015 Order but repealed in the 2018 Order. The
Executive Order specifically asserts that "the Federal Communications Commission (FCC)
recently issued its order, 'Restoring Internet Freedom' which eliminated net neutrality principles,"
E.O. pmbl., and that the Executive Order is designed to reverse that federal action by mandating
that "[a]ll State Agency contracts with Internet service providers shall include net neutrality
protections," id. ,-i I. Similarly, the "findings" set forth in § 1 of S. 289 acknowledge that "[t]he
Federal Communications Commission's (FCC's) recent repeal of the federal net neutrality rules
pursuant to its Restoring Internet Freedom Order manifests a fundamental shift in policy" based
on the FCC's determination that "a 'light-touch' regulatory approach under Title I of the
Communications Act of 1934, rather than 'utility-style' regulation under Title II, will further
advance the [c ]ongressional goals of promoting broadband deployment and infrastructure
investment." S. 289 § 1(9). But the findings go on to claim, without pointing to any evidence,
that "[t]he FCC's regulatory approach is unlikely to achieve the intended results in Vermont," and
attempt to rationalize the enactment of the statute on that basis. Id. § 1(10). Thus, the General
Assembly explicitly rejected the 2018 Order's policies in favor of conflicting policies that the 2018
Order repealed.
46.
Accordingly, the Executive Order and S. 289 are the very kind of state measures
that the 2018 Order and the Communications Act each preempt. As noted above, the 2018 Order
"preempt[ s] any state or local measures that would effectively impose rules or requirements that
22
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[the FCC has] repealed or decided to refrain from imposing in this order or that would impose
more stringent requirements for any aspect of broadband service" addressed in the 2018 Order.
2018 Order~ 195 (emphases added). The 2018 Order's preemption of "state or local measures"
plainly covers the Executive Order and S. 289, which both seek to reinstate net neutrality
requirements that the 2018 Order repealed, as well as "more stringent" versions of those
requirements, and thus explicitly "impose [net neutrality] requirements" on ISPs in their provision
of BIAS. Id The "rules or requirements that [the FCC] repealed" in the 2018 Order include the
prior no-blocking rule, no-throttling rule, no-paid-prioritization rule, and the Internet Conduct
Standard. The Executive Order and S. 289 reinstate all of these repealed rules for ISPs that contract
with the State. 3
4 7.
In fact, the Executive Order goes even further than the repealed federal rules by
applying the requirements more stringently to all "Internet service providers" and all "Internet
services," including those sold to government and enterprise customers, E.O. pmbl, ~ l, rather than
limiting its reach only to the providers of the mass-market services that the FCC had decided to
regulate in the 2015 Order. See 2015 Order~~ 25-26 (defining BIAS to exclude providers of
enterprise services and similar offerings); id.~~ 15, 16, 18, 21 (applying prior federal net neutrality
3
S. 289 also includes a disclosure requirement that differs from the 2018 Order's revised
transparency rule. Compare 2018 Order ~ 215 (requiring disclosure of "accurate information
regarding the network management practices, performance, and commercial terms of its broadband
Internet access services sufficient to enable consumers to make informed choices regarding the
purchase and use of such services and entrepreneurs and other small businesses to develop, market,
and maintain Internet offerings"), with S. 289 § 2 (requiring that disclosures also be sufficient "for
content, application, service, and device providers to develop, market, and maintain Internet
offerings"). This requirement is preempted as well, as the 2018 Order specifically preempts "any
state laws that would require the disclosure of broadband Internet access service performance
information, commercial terms, or network management practices in any way inconsistent with
the transparency rule we adopt herein." 2018 Order~ 195 n.729. Indeed, Vermont would have
had no reason to enact S. 289's disclosure requirement if the intent were merely to replicate the
FCC' s existing transparency rule.
23
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rules to BIAS providers only "insofar as such person is ... engaged" in the provision of BIAS).
By the same token, the Executive Order also goes beyond the 2015 Order by requiring all ISPs
that contract with State agencies to comply with the net neutrality rules in their dealings with "any
Internet customer," E.O. ,-i LC-not merely with the mass-market customers that were the subject
-of the FCC's rules in the 2015 Order.
48.
Even apart from the 2018 Order's express preemption ruling, the Executive Order
and S. 289 stand as obstacles to the federal policy of reducing regulation of broadband Internet
service by re-imposing the regulations the FCC repealed and by extending them to broadband
Internet services that the FCC had intentionally never subjected to its net neutrality rules. See,
e.g., City of New York v. FCC, 486 U.S. 57, 64 (1988) ("The statutorily authorized regulations of
an agency will pre-empt any state or local law that conflicts with such regulations or frustrates the
purposes thereof."); Ark. Elec. Co-op., 461 U.S. at 384 (a federal determination that the area is
best left "unregulated" carries "as much pre-emptive force as a decision to regulate") (emphasis in
original). To take one example, both the Executive Order and S. 289 re-impose the FCC's repealed
Internet Conduct Standard-which the 2018 Order found had "hindered investment and
innovation." 2018 Order ,-i 247; see E.O. ,-rI.D; S. 289 § 2. What is more, the Executive Order
expands the FCC's Internet Conduct Standard by omitting the FCC's exception for "reasonable
network management." See E.O. ,-i I.D. These measures blatantly flout the FCC's federal policy
determination and harm broadband providers and consumers both by constraining the development
of innovative new services and by subjecting ISPs to a patchwork of complex, burdensome, and
inconsistent regulation.
49.
The Executive Order and S. 289 also are flatly inconsistent with, and stand as
obstacles to, Congress's statutory prohibition in the Communications Act on imposing common
24
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earner regulation on broadband providers except "to the extent" that they provide a
"telecommunication service" or, in the case of wireless providers, a "commercial mobile service."
47 U.S.C. §§ 153(51), 332(c)(l)(A). The FCC determined in the 2018 Order that BIAS is an
information service, not a telecommunications service.
2018 Order
,r 239.
The FCC also
determined that wireless BIAS is a private mobile service, not a commercial mobile service. Id
In so doing, the FCC further held that these classifications best achieve federal policies of
"encouraging broadband investment and innovation, making broadband available to all Americans
and benefitting the entire Internet ecosystem." 2018 Order ,r,r 74, 86.
50.
Because broadband Internet service is an information service rather than a
telecommunications service, broadband providers are exempt from common carrier regulation
under federal law. See Verizon, 740 F.3d at 650 (fmding it "obvious that the Commission would
violate the Communications Act were it to regulate broadband providers as common carriers,"
given the Commission's decision to "classify broadband providers ... as providers of 'information
services"'); id (finding that, "because the Commission has classified mobile broadband service as
a 'private' mobile service ... , treatment of mobile broadband providers as common carriers would
violate section 332"). And, because wireless broadband Internet service is a private mobile
service, rather than a commercial mobile service, wireless broadband providers are doubly exempt
from common carrier regulation. See Cellco P'ship v. FCC, 700 F.3d 534, 538 (D.C. Cir. 2012).
51.
As explained above, the D.C. Circuit previously struck down the FCC's nearly
identical, pre-2015 net neutrality rules precisely because they imposed common carrier
requirements on providers that are exempt from such regulation. See id at 657-68 (holding that a
net neutrality regime that includes flat bans on blocking and paid prioritization and thus "leaves
no room at all for individualized bargaining" constitutes impermissible common carrier regulation
25
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of information service providers (internal quotations marks and citations omitted)). Even the
prohibition on unreasonable interference "mirrors" statutory language "establishing the basic
common carrier obligation not to 'make any unjust or unreasonable discrimination."' Id. at 657
(quoting 47 U.S.C. § 202). By imposing common carrier regulation on both information services
and private mobile services, the Executive Order and S. 289 interfere with the federal policies
expressed in the 2018 Order and violate specific provisions of the Communications Act, and are
therefore preempted on both grounds. See Charter Advanced Servs., 2018 WL 4260322, at *2
("[A]ny state regulation of an information service conflicts with the federal policy of
nonregulation, so that such regulation is preempted by federal law." (internal quotation marks and
citation omitted)).
52.
In fact, since the adoption of the Executive Order and the enactment of S. 289, the
Vermont Public Utility Commission ("Vermont PUC"), the state agency responsible for regulating
certain intrastate communications services in Vermont, has recognized the preemptive force of the
2018 Order. In a June 2018 decision, the Vermont PUC held that it was "preempted from asserting
jurisdiction" over a dispute involving an ISP's BIAS offering-high-speed Internet access over
digital subscriber line ("DSL") service-because it is "not subject to state jurisdiction" in light of
"the FCC's classification ofbroadband services such as DSL as information services." Petition of
Vanu Coverage Co., Case No. 18-1543-PET, Order Dismissing Petition Without Prejudice for
Lack of Jurisdiction, at 6-7 (Vt. Pub. Util. Comm'n Jun. 18, 2018). The Vermont PUC also
specifically pointed to the FCC's policy determination that "allowing state or local regulation of
broadband Internet access service could impair the provision of such service by requiring each
[Internet Service Provider] to comply with a patchwork of separate and potentially conflicting
26
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requirements across all of the different jurisdictions in which it operates." Id at 6 (quoting 2018
Order~ 194).
53.
Moreover, Defendants and their agencies themselves voiced serious legal concerns
about state-specific net neutrality conditions prior to the adoption of these measures. When the
Vermont General Assembly was considering S. 289, the Vermont Public Service Department
"strongly caution[ ed]" against such legislation because it "would likely run afoul of the preemption
provisions" in the 2018 Order and warned that "a federal court is likely to be highly skeptical [of]
and disinclined to uphold any law that directly or indirectly seeks to legislate or regulate net
neutrality." Ex. 4, Mem. from Pub. Serv. Dep't to Kendal Smith. Similarly, Defendants Young
and Quinn expressed their concerns regarding S. 289 and cautioned the Vermont Senate that the
2018 Order "made clear that the new rules preempt any state attempts to regulate [I]nternet traffic."
Ex. 5, Mem. from Young et al. to Sen. Committee on Finance (emphasis added). Even Governor
Scott himself, in a letter to legislators written at the same time he signed S. 289, pointed to "federal
preemption of state laws in this area" and acknowledged that "this legislation"-that is, S. 289"may have to be modified to mitigate the risk of expensive litigation." Ex. 3, Scott Letter at 1.
54.
These Defendants were correct-both in acknowledging the 2018 Order's
controlling preemption ruling and in recognizing that it covers state efforts to impose net neutrality
obligations in the form of procurement conditions. Supreme Court precedent makes clear that a
state cannot use its spending power as a means to regulate indirectly what it cannot regulate
directly. See Chamber of Commerce v. Brown, 554 U.S. 60, 69 (2008) (when a state cannot
"directly regulate" activity that is preempted by federal law, "[i]t is equally clear that [the state]
may not indirectly regulate such conduct by imposing restrictions on the use of state funds"). Nor
can Defendants claim that the Executive Order and S. 289 avoid preemption here because the State
27
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of Vermont is acting as a market participant and not a regulator. Wisconsin Dep 't of Indus. v.
Gould, Inc., 475 U.S. 282, 287 (1986) (rejecting the state's argument that its statutory scheme
"escapes pre-emption because it is an exercise of the state's spending power rather than its
regulatory power"). While a state generally is free to specify the characteristics of the products
and services it purchases for its own use, Supreme Court precedent draws a controlling distinction
between the role of the state as "market participant" and as regulator. Specifically, the Supreme
Court's cases instruct that the market participant exception does not apply where the challenged
action, "for all practical purposes, ... is tantamount to regulation." Id. at 289. A state acts as a
regulator, and not as a market participant, when the state measure at issue "is neither 'specifically
tailored to one particular job' nor a 'legitimate response to state procurement constraints or to local
economic needs."' Brown, 554 U.S. at 70. That is plainly the case here.
55.
Indeed, case law establishes that substance, not form, matters for the market-
participant inquiry, and that a state that seeks to regulate conduct outside the scope of state
contracts cannot fall within the market participant exception. Compare Gould, 475 U.S. at 288
(holding that a state policy forbidding state contracts with three-time National Labor Relations Act
violators was preempted because it sought to penalize contractors for conduct outside the scope of
the state contract), with Bldg. & Const. Trades Council of the Metro. Dist. v. Associated Bldrs. &
Contractors of Mass.JR.I. Inc., 507 U.S. 218, 232 (1993) (upholding a condition in a contract
between a state agency and a contractor that was "specifically tailored to one particular job" and
aimed at ensuring "an efficient project that would be completed as quickly and effectively as
possible at the lowest cost"); see also Bldg. Indus. Elec. Contractors Ass 'n v. City of New York,
678 F.3d 184, 189 n.2 (2d Cir. 2012) ("Extracontractual effect is an indicator of regulatory rather
than proprietary intent .... "). The Second Circuit has applied this precise framing to preemption
28
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claims arising under the Communications Act and the FCC's implementing rules and orders. See
Sprint Spectrum L.P. v. Mills, 283 F.3d 404,416 (2d Cir. 2002) (applying Gould to preemption
analysis under the Communications Act and FCC orders and rules). Contrary to these precedents,
the Executive Order and S. 289 explicitly aim to regulate ISP conduct generally in order to require
adherence to net neutrality principles throughout the State, by purporting to regulate services
provided to all consumers in Vermont. They are plainly preempted.
Executive Order No. 2-18 and S. 289 Violate the Dormant Commerce Clause
56.
The Executive Order and S. 289 independently violate the Commerce Clause of the
United States Constitution, Art. I, § 8, cl. 3, both because they regulate "commerce occurring
wholly outside the boundaries of [Vermont]," Healy v. Beer Inst., Inc., 491 U.S. 324,336 (1989),
and because they impose burdens on interstate commerce that outweigh any purported local
benefit, Pike v. Bruce Church, Inc., 397 U.S. 137, 146 (1970). Under the "dormant" or "negative"
Commerce Clause, a state may not "discriminate against or burden the interstate flow of articles
of commerce," Oregon Waste Sys., Inc. v. Dep 't of Envtl. Quality of State of Or., 511 U.S. 93, 98
(1994), or '"erect barriers against interstate trade,"' Am. Booksellers Found. v. Dean, 342 F.3d 96,
102 (2d Cir. 2003) (quoting Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 35 (1980)). The
Executive Order and S. 289 plainly violate these core constitutional principles.
57.
The Executive Order and S. 289 are per se unconstitutional because they "ha[ve]
the 'practical effect' of regulating commerce occurring wholly outside [Vermont's] borders."
Healy, 491 U.S. at 332. As the FCC has long recognized, and as courts have confirmed, Internet
access service is inherently interstate, and it is impossible or impracticable to separate Internet
service into intrastate and interstate activities. See, e.g., 2018 Order ,r,r 199-200 (citing prior FCC
orders). Under the "packet switching" approach that undergirds all Internet transmissions, content
29
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is divided up into data packets that ISPs deliver by routing them over a variety of interconnected
networks along dynamic paths without regard for state boundaries, which practically forecloses
any effort to segregate intrastate from interstate Internet communications. Moreover, because the
wireless signals that mobile ISPs use do not stop at state borders, the Executive Order and S. 289
also regulate extraterritorially when customers in Vermont with smartphones access the Internet
by connecting to an antenna physically located in a neighboring state. Thus, "it is difficult, if not
impossible, for a state to regulate internet activities without projecting its legislation into other
States." Am. Booksellers Found., 342 F.3d at 103 (invalidating a Vermont statute regulating the
Internet because the "[I]nternet's geographic reach ... makes state regulation impracticable").
58.
The Executive Order also expressly purports to regulate commerce outside
Vermont by prohibiting State agencies from contracting with an ISP that is non-compliant with
respect to "any Internet customer" (or, as it is framed elsewhere in the Executive Order, any
"customer," without further qualification), not just those residing or located in Vermont. See E.O.
,r,r I.A-D.
Each of these substantial extraterritorial effects plainly violates the dormant Commerce
Clause.
See SPGGC, LLC v. Blumenthal, 505 F.3d 183, 193 (2d Cir. 2007) (recognizing
extraterritoriality "as a basis for per se invalidity" under the dormant Commerce Clause).
59.
The Executive Order and S. 289 independently violate the dormant Commerce
Clause because they impose burdens on interstate commerce that are "excessive in relation to the
putative local benefits" to Vermont. Pike, 397 U.S. at 142. As the FCC has found, the net
neutrality requirements the Executive Order and S. 289 seek to re-impose place significant burdens
on interstate commerce that outweigh any benefits those rules provide. See 2018 Order ,r,r 239266. For example, the Executive Order and S. 289 revive the FCC's Internet Conduct Standard,
which the FCC repealed because it "subjects providers to substantial regulatory uncertainty" and
30
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in tum led them to "forego or delay innovative service offerings ... that benefit consumers," and
because the "net benefit of the Internet Conduct Standard is negative." 2018 Order,, 246-249
(emphasis added). The Supreme Court has also warned against the burden imposed on interstate
commerce caused "by subjecting activities to inconsistent regulations." CTS Corp. v. Dynamics
Corp. of Am., 481 U.S. 69, 88 (1987); see also United Haulers, 438 F.3d at 156-57 (recognizing
"a regulatory requirement inconsistent with those of other states" as a "differential burden on
interstate commerce"). In the context of the Internet in particular, compliance with a patchwork
of inconsistent state laws is inherently burdensome and likely impossible.
60.
Against these burdens, the State did not, and indeed cannot, identify any local
benefits the Executive Order or S. 289 will provide, much less benefits that outweigh the heavy
burdens imposed on interstate commerce-particularly in light of the 2018 Order's investmentfriendly approach to open Internet principles. As described above, the 2018 Order implements
detailed transparency requirements under which ISPs must clearly disclose their network practices
and terms of service. ISPs must disclose blocking, throttling, paid prioritization, congestion
management, and other network management practices and performance characteristics. 2018
Order
fl 219-222.
These disclosures enable consumers to choose between ISPs; moreover, ISP
commitments and disclosures are fully enforceable by the FTC,4 as well as state attorneys general
(provided they enforce such commitments in a manner consistent with federal law). See 2018
Order
fl
196, 244; see also id. , 242.
Beyond those transparency requirements, consumer
protection and antitrust laws provide a backstop against any anti-competitive behavior. The FCC
4
The FTC has authority under Section 5 of the FTC Act to take enforcement action challenging
any "unfair or deceptive acts or practices." 15 U.S.C. § 45(a)(l).
31
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found that these constraints "will significantly reduce the likelihood that ISPs will engage in
actions that would harm consumers or competition." Id. ,-i 116.
61.
In concluding that this "lighter touch" approach would protect consumers, while
better promoting innovation and investment, the FCC found, based on its evaluation of the record
evidence, that "ISPs have strong incentives to preserve Internet openness," id. ,-i 117, and that
"there has been a shift toward ISPs resolving openness issues themselves with less and less need
for Commission intervention," id. ,-i 242. In that vein, all of the Associations' members, either on
their own or through their Associations, have made public commitments to abide by open Internet
principles, which, as described above, are fully enforceable.
62.
Both the Supreme Court and the Second Circuit have held that state regulations fail
the dormant Commerce Clause's balancing test where, as here, the purported benefit "could be
promoted as well with a lesser impact on interstate activities." Nat'! Farmers Org. Irasburg v.
Comm 'r of Agric., State of Conn., 711 F.2d 1156, 1163 (2d Cir. 1983) (quoting Pike, 397 U.S. at
142). The Executive Order failed even to offer a factual basis for its claims that its provisions will
benefit the State. And S. 289's bald and unsubstantiated assertion that the statute's "burden on
interstate commerce" is "outweighed by the compelling interests the State advances," S. 289
§ 1(21 ), plainly is insufficient to overcome the weight of precedent here. See Bibb v. Navajo
Freight Lines, Inc., 359 U.S. 520, 530 (1959) (when "balanced against the clear burden on
commerce," a state's "inconclusive" showing of benefit is insufficient to defeat a dormant
Commerce Clause challenge).
63.
Furthermore, courts have long recognized that the dormant Commerce Clause
prevents states from "imped[ing] ... the free flow of commerce" where there exists a "need of
national uniformity." S. Pac. Co. v. State of Ariz. ex rel. Sullivan, 325 U.S. 761, 768 (1945);
32
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Morgan v. Commonwealth, 328 U.S. 373, 386 (1946). The Second Circuit foresaw the very
dilemma the Executive Order and S. 289 pose when it stated "that the internet will soon be seen
as falling within the class of subjects that are protected from state regulation because they
'imperatively demand[] a single uniform rule."' Am. Booksellers Found., 342 F.3d at 104 (quoting
Cooley v. Bd. of Wardens, 53 U.S. 299,319 (1851)). As predicted, the Executive Order and S.
289 are but two threads in a tapestry of inconsistent, incongruous, and incompatible Internet access
service regulations unified by a shared distaste for federal primacy and uniformity. The dormant
Commerce Clause is a bulwark "against inconsistent legislation arising from the projection of one
state regulatory regime into the jurisdiction of another State." Healy, 491 U.S. at 337. The
Executive Order and S. 289 demand application of this constitutional bulwark here.
Injury to the Associations' Members
64.
The Associations' members have bid on and/or obtained contracts with Vermont
agencies in the past and intend to do so in the future. Indeed, since the Executive Order's signing
in February, certain Association members have been in active negotiations with governmental
entities in Vermont regarding the terms of broadband service contracts.
65.
The Executive Order and S. 289 subject the Associations' members that bid on
government contracts in Vermont to unconstitutional legal requirements-a significant injury in
and of itself, and one that courts have found to be irreparable for purposes of issuing a permanent
injunction. See, e.g., Nat'! Collegiate Athletic Ass'n v. Christie, 926 F. Supp. 2d 551,578 (D.N.J.
2013) (holding that enactment of a law "in violation of the Supremacy Clause, alone, likely
constitutes an irreparable harm requiring the issuance of a permanent injunction"), ajf'd sub nom.
Nat 'l Collegiate Athletic Ass 'n v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013). Indeed,
the Executive Order broadly applies not just to the mass-market retail BIAS services that the 2015
33
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Order subjected to net neutrality requirements, but to all broadband Internet services, including
those sold to government and enterprise customers, which have never been subject to net neutrality
requirements.
66.
Moreover, the specific requirements that both the Executive Order and S. 289
impose will cause irreparable injury to the businesses of Associations' members that bid on and
win state contracts. For instance, the 2018 Order makes clear that the Internet Conduct Standard,
which the FCC specifically repealed but which the Executive Order and S. 289 purport to reinstate
for Vermont ISPs, subjects ISPs (and their customers) to significant harm. See 2018 Order,r,r 24652.
This "vague Internet Conduct Standard subjects providers to substantial regulatory
uncertainty," id. ,i 24 7, as a result of which "ISPs and edge providers of all sizes have foregone
and are likely to forgo or delay innovative service offerings or different pricing plans that benefit
consumers, citing regulatory uncertainty under the Internet Conduct Standard in particular," id.
,r 249. The loss of business opportunities caused by the application of and compliance with the
Executive Order and S. 289 will therefore result in irreparable harm to the Associations' members.
Register.com Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004) (holding that the district court
did not abuse its discretion in finding a permanent injunction necessary to prevent loss of business
opportunities).
67.
Members also will be subject to lost business opportunities if they do not accede to
the unlawful conditions set forth in the Executive Order and S. 289, which prohibit non-compliant
ISPs from entering into service contracts with governmental entities.
Members thus face
significant harm to the extent that they are prevented from offering services to State entities
because of the Executive Order and S. 289.
34
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68.
More broadly, state measures like these that impose net neutrality requirements on
ISPs "impair the provision of broadband Internet access service by requiring each ISP to comply
with a patchwork of separate and potentially conflicting requirements across all the different
jurisdictions in which it operates." 2018 Order
regulation has already become a reality.
,r
194.
This harmful "patchwork" of state
In addition to Vermont, five other states (Hawaii,
Montana, New Jersey, New York, and Rhode Island) have issued executive orders establishing
state-specific net neutrality obligations. Three other states (California, Washington, and Oregon)
have enacted state-specific net neutrality legislation. There is significant variation among these
state measures. For example, in contrast to the Executive Order and S. 289, which reinstate the
FCC's repealed Internet Conduct Standard, the New York executive order imposes an entirely
different catch-all provision prohibiting ISPs from "requir[ ing] that end users pay different or
higher rates to access specific types of content or applications." See New York EO-175 (signed
Jan. 24, 2018), available at https://on.ny.gov/2LBkRGY. Because of the inherently interstate
nature of the Internet, providers cannot apply Vermont's requirements to Internet packets as they
move through Vermont, and then apply New York's requirements when those packets travel
through New York. The provision of broadband Internet service is already being "impair[ ed]" by
the imposition of these separate and inconsistent state regulatory regimes. 2018 Order ,r 194. And
these sorts of variations will only multiply as other states enact net neutrality legislation, and
different agencies and courts in different states interpret and enforce each state's requirements
differently.
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Case 2:18-cv-00167-jmc Document 1 Filed 10/18/18 Page 36 of 39
FIRST CLAIM FOR RELIEF
Executive Order No. 2-18 and S. 289 Are Preempted by Federal Law
69.
The allegations of paragraphs 1 through 68 above are incorporated as though fully
set forth herein.
70.
The Executive Order and S. 289 are expressly preempted by the 2018 Order and
the Communications Act. Under the Supremacy Clause of the United States Constitution, U.S.
Const. art. VI, cl. 2, state laws that contravene validly enacted federal laws are preempted and have
no force or effect. The Executive Order and S. 289 contravene binding federal law and policy as
set forth in the 2018 Order and the Communications Act and are therefore preempted.
71.
The 2018 Order expressly "preempt[ s] any state or local measures that would
effectively impose rules or requirements that [the FCC has] repealed or decided to refrain from
imposing in this order or that would impose more stringent requirements for any aspect of
broadband service" addressed in the 2018 Order. 2018 Order ,r 195 ( emphases added).
72.
The Executive Order and S. 289 plainly fall within the scope of this express
preemption provision. They are state measures that seek to reinstate net neutrality requirements
that the 2018 Order repealed. And the Executive Order imposes more stringent requirements by
expanding those obligations to a larger set of providers and services than the repealed federal
regulations covered, by extending to all broadband Internet services (including enterprise offerings
sold to government entities and large businesses that the FCC decided not to regulate), not just
mass-market offerings. The Executive Order and S. 289 also are subject to conflict preemption
because they stand as an obstacle to the federal policy of reducing regulation of broadband Internet
services.
73.
In addition, the 2018 Order reclassifies BIAS as an information service and mobile
BIAS as a private mobile services, both of which are exempt from common carrier regulation
36
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under the Communications Act. By basing their requirements on standards formerly predicated
on classifying BIAS as a common carrier telecommunications service, the Executive Order and
S. 289 impose common carrier regulation on ISPs in violation of the express terms of the federal
Communications Act and federal policy and are therefore preempted for that reason as well.
74.
As explained above, binding precedent holds that a state may not use its spending
power as a means to regulate indirectly what it cannot regulate directly. Nor can a state escape
preemption by claiming it is acting as a market participant where, as here, the challenged measure
aims to reach conduct wholly outside the scope of a state contract, including by regulating the
provision of service to all customers throughout the state.
75.
The Executive Order and S. 289 subject the Associations' members to significant
and irreparable harm by imposing unconstitutional requirements on members, causing members
to lose business opportunities, and impairing members' services by exposing them to a patchwork
of inconsistent regulation.
76.
Vermont's enforcement of the Executive Order and S. 289 will deprive the
Associations' members of their rights under the Constitution and laws of the United States, in
violation of 42 U.S.C. § 1983.
SECOND CLAIM FOR RELIEF
Executive Order No. 2-18 and S. 289 Violate the Dormant Commerce Clause
77.
The allegations of paragraphs 1 through 76 above are incorporated as though fully
set forth herein.
78.
The Executive Order and S. 289 violate the Commerce Clause of the United States
Constitution, art. I, § 8, cl. 3.
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79.
The Executive Order and S. 289 are state measures that regulate conduct occurring
outside the borders of the State. The Executive Order and S. 289 also impose burdens on interstate
commerce that are not justified by putative in-state benefits. Binding precedent holds that such
state regulations are invalid under the Commerce Clause.
80.
The Executive Order and S. 289 subject the Associations' members to significant
and irreparable harm-by imposing unconstitutional requirements on members, causing members
to lose business opportunities, and impairing members' services by exposing them to a patchwork
of inconsistent regulation.
81.
Vermont's enforcement of the Executive Order and S. 289 will deprive the
Associations' members of their rights under the Constitution and laws of the United States, in
violation of42 U.S.C. § 1983.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that the Court grant the following relief:
1. A declaration and judgment pursuant to 28 U.S.C. § 2201 that Vermont Executive
Order No. 2-18 and S. 289 are preempted by federal law.
2. A declaration and judgment pursuant to 28 U.S.C. § 2201 that Vermont Executive
Order No. 2-18 and S. 289 violate the Commerce Clause.
3. An order permanently enjoining Defendants from enforcing or giving effect to
Vermont Executive Order No. 2-18 and S. 289.
4. An award ofreasonable costs and attorneys' fees pursuant to 42 U.S.C. § 1988.
5. Such further relief as the Court deems just and equitable.
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Dated: October 18, 2018
Respectfully submitted,
Scott H. Angstreich*
Brendan J. Crimmins*
Rachel Proctor May*
KELLOGG, HANSEN, TODD, FIGEL, &
FREDERICK, P.L.L.C.
1615 M Street NW, Suite 400
Washington, DC 20036
(202) 326-7900
sangstreich@kellogghansen.com
bcrimmins@kellogghansen.com
rmay@kellogghansen.com
David M. Pocius
PAUL FRANK+ COLLINS P.C.
P.O. Box 1307
Burlington, VT 05402-1307
(802) 881-0828
dpocius@pfclaw.com
Attorney for Plaintiffs American Cable
Association, CTIA - The Wireless
Association, NCTA - The Internet &
Television Association, New England Cable
& Telecommunications Association, and
USTelecom - The Broadband Association
Attorneys for Plaintiffs CTIA - The Wireless
Association and USTelecom - The
Broadband Association
Matthew A. Brill*
Matthew T. Murchison*
Adam J. Tuetken*
LATHAM & WATKINS LLP
555 Eleventh Street NW, Suite 1000
Washington, DC 20004
(202) 637-2200
matthew. brill@lw.com
matthew.murchison@lw.com
adam. tuetken@lw.com
Jeffrey A. Lamken*
MOLOLAMKEN LLP
The Watergate, Suite 600
600 New Hampshire Ave., NW
Washington, DC 20037
(202) 556-2000
jlamken@mololamken.com
Attorney for Plaintiff American Cable
Association
Attorneys for Plaintiffs NCTA - The Internet
& Television Association and New England
Cable & Telecommunications Association
*Pro hac vice motion to be filed
39
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