California’s net neutrality law sparks Justice Department lawsuit

California Gov. Jerry Brown on Sunday signed into law the strictest set of net neutrality protections ever seen in the US -- and the Trump administration immediately said it'd challenge the state's authority in court.

Up against a midnight deadline, Brown, a Democrat, signed a bill that uses Obama-era net neutrality protections as the basis for state law. Those earlier ruIes prohibited internet service providers from slowing or blocking access to websites or charging companies like Netflix extra to deliver their service faster.

The California law goes further, outlawing so-called zero-rating offers, which allow carriers to exempt certain services from counting against a user's data cap. It also applies the net neutrality rules to so-called "interconnection" deals between network operators, something the FCC's 2015 rules didn't explicitly do. 

Watch this: California takes a big stand on net neutrality

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Interconnection happens when two network operators hand off traffic to one another. For example, when Netflix delivers video streams directly to broadband providers, like Verizon and Comcast, which control the internet connection into people's homes. Companies negotiate private contracts over those handoffs. And California's law ensures the rules of no-blocking, no-throttling and no-paid prioritization also applies when traffic is being handed off.

California's net neutrality efforts have long been opposed by the Trump administration, which late Sunday announced its intention to file a lawsuit to block the law. US Attorney General Jeff Sessions said California's new legislation places an unlawful burden on the US government's efforts to deregulate the internet.

"Under the Constitution, states do not regulate interstate commerce -- the federal government does," Sessions said in a statement. "The Justice Department should not have to spend valuable time and resources to file this suit today, but we have a duty to defend the prerogatives of the federal government and protect our Constitutional order." 

FCC Chairman Ajit Pai, who earlier this month said California's law is illegal, praised the Justice Department's filing.

"The internet is inherently an interstate information service," Pai said in a statement. "As such, only the federal government can set policy in this area."

California State Sen. Scott Wiener, a Democrat from San Francisco, who authored the legislation, said he's confident California will successfully defend itself against the government's lawsuit.

"We've been down this road before: when Trump and Sessions sued California and claimed we lacked the power to protect immigrants," he said in a statement. "California fought Trump and Sessions on their immigration lawsuit -- California won -- and California will fight this lawsuit as well."

The legislation has been opposed by the broadband industry, which considers it too restrictive. The bill had been sitting on Brown's desk since early September after it passed the California Assembly.

California is just one of several states looking to enact its own rules governing an open internet, after the Federal Communications Commission, under Pai, rolled back the Obama-era net neutrality rules in June. States such as Washington have pushed through a net neutrality law, while others are considering it. Meanwhile, attorneys general of 22 states and the District of Columbia have already filed a brief to a US Appeals Court to reverse the FCC's move. Companies like Firefox publisher Mozilla and trade groups also filed arguments.

Net neutrality, the principle that all internet traffic is treated fairly, has been one of the hottest topics of debate over the past several years. Consumers, tech companies and Democrats have pushed for stricter regulations prohibiting the prioritization of traffic, which resulted in the rules put in place by the previous FCC. But the Trump-era FCC has agreed with ISPs and Republicans who fear the regulations are onerous and hurt capital investment.

Who's in charge?

Fight for the Future, a grassroots group that helped get the California net neutrality law passed, argues states must take action to protect net neutrality, since the FCC has abdicated its authority for overseeing the internet to the Federal Trade Commission. 

"We think that states have a strong argument to set their own net neutrality rules," said Evan Greer, deputy director of the group. "Ultimately the FCC can't have it both ways. If they refuse to do their job providing basic oversight for ISPs, then they can't legally prevent the states from doing their job for them."

But Paul Gallant, an industry analyst at the market research firm Cowen, sees it differently. He said a recent US Appeals Court decision in the Eighth Circuit makes it clear that any service considered an "information service" under the Telecom Act must follow federal regulation rather than state rules. As part of the FCC's repeal of the 2015 net neutrality rules, the agency returned broadband to an "information service" classification. For this reason, Gallant argues that the FCC's decision to deregulate broadband will pre-empt California's attempts to regulate it.

"The facts and logic of the 8th Circuit ruling appear closely analogous to the DOJ vs. California net neutrality case," Gallant said in a research note Monday. "So we would anticipate a federal appeals court reaching the same outcome and preempting California's net neutrality law."

For its part, AT&T, which lobbied against the California net neutrality bill, says the issue shouldn't be handled at the state level. The company, which also unsuccessfully sued to have the Obama-era FCC rules thrown out, claims it supports "an open and transparent internet, free of gatekeepers," but it thinks Congress should make clear rules of the road when it comes to net neutrality. 

Joan Marsh, an executive vice president of regulatory and state affairs for AT&T, said in a statement that only "a uniform, national law" can protect consumers, innovators and ISPs' investment in their networks.  

"Simply put, state-by-state regulation in this area is insufficient and unworkable," she said. "Because the internet is a global network of networks that enables consumers to access and use information, content and services without regard to state, and even national, boundaries." 

CNET's Steven Musil contributed to this report.

Originally published Sept. 30,  5:23 p.m. PT.
Update, Oct. 1, 2:07 p.m. PT: Added statements from Sen. Scott Wiener, Fight for the Future and analyst Paul Gallant.

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