Pennsylvania Bill Would Turn Broadband Internet Networks into Public Utilities

On March 17, Pennsylvania House Bill 924 was referred to a legislative committee in that state's lower chamber. If it were to become law, the bill would change the definition of "public utility" under Pennsylvania law to include "[p]roviding persons with the ability to connect to the Internet through equipment that is located in this Commonwealth." In short, PA House Bill 924 is a state net neutrality bill, that would impose no blocking, no throttling, no paid prioritization, and other restrictions on provider network management, and delegate authority to the state's public utility commission to regulate broadband Internet access services.  

PA House Bill 924 was filed in the wake of the Sixth Circuit's March 11 order denying a rehearing en banc on that court’s January 2 three-judge panel decision to vacate the FCC's 2024 Title II Order. The state bill also follows closely on the heels of the Supreme Court's February 24 order deny a rehearing on its prior order to deny a writ of certiorari in New York State Telecommunications Association v. James. The denial of a rehearing in James leaves in place a Second Circuit decision from April 2024 that upheld New York State’s Affordable Broadband Act that imposed rate regulation on interstate Internet broadband access services offered by broadband providers in that state.

 

It seems unlikely, if not implausible, that Congress intended to open up jurisdictionally interstate information services (previously known as "enhanced services") like broadband access to state regulation when it established non-regulated or lightly-lightly regulated Title I classification for "information services" in the Telecommunications Act of 1996. But according to three circuit courts of appeal, that apparently is what Congress did. The Second, Ninth, and D.C. Circuits – have concluded that the FCC's decision in the 2017 Restoring Internet Freedom order to classify broadband access services as Title I services had the effect of removing the agency's jurisdiction over interstate broadband services, thus preventing the Commission from preempting state public utility regulation of those same services. 

 

For some further context, the FCC's proceeding that led up to the FCC's 2024 Title II Order cited zero instances of blocking, throttling, or harmful paid prioritization arrangements. Moreover, all or nearly all broadband ISPs in America have terms of service pledges to not engage in blocking, throttling, or harmful paid prioritization. So long as broadband access services are Title I "information services" (and not Title II "telecommunications services") those service term pledges are enforceable by the Federal Trade Commission under its authority to address unfair and deceptive trade practices. 

 

Expect the issue of state-level public utility regulation of broadband Internet access services, including price controls, to be a subject of discussion at the Free State Foundation's Seventeenth Annual Policy Conference – #FSFConf17 – on March 25, in Washington, D.C. Register today for the conference. 

USF Tax Rises to Record High 36.6%

On March 13, the FCC's Office of Managing Director announced that the Universal Service Fund (USF) contribution factor for the second quarter of 2025 will be 36.6%. Absent intervention by the FCC's Commissioners, the proposed rate will soon go into effect. 

The expected rate hike to 36.6% appears to result in another new all-time high for the "USF Tax." It is far higher than the rate from a few years ago. 

 

The U.S. Court of Appeals for the Fifth Circuit rightly called USF surcharges an unconstitutional "USF Tax." They are imposed on voice consumers based on a percentage of the long-distance part of their monthly bills. The money paid by consumers is collected by the voice carriers and passed on to the Universal Service Administrative Company (USAC), the private corporation established by the FCC to administer the USF program and dole out subsidies to program recipients. 

 

The Supreme Court granted a writ of certiorari in FCC v. Consumers' Research, a case involving the issue of whether the USF contribution mechanism is constitutional under the Article I, Section 1 Legislative Vesting Clause. The Court will hold oral arguments in the case on March 26. 

 

USF reform is one of the topics that is sure to be part of the discussion at the Free State Foundation's upcoming Seventeenth Annual Policy Conference – #FSFConf17. The conference will be held in Washington, D.C. on March 25. Conference registration and the conference agenda are available online. 

High Court Again Declines to Rule on State-Level Price Controls for Broadband

On February 24, the Supreme Court issued an order denying a petition for a rehearing on its order to deny a writ of certiorari in New York State Telecommunications Association v. James. That is a wordy way of saying the Court declined to change its mind about its earlier refusal to take up the case. The Court's order leaves in place an April 2024 decision by the U.S. Court of Appeals for the Second Circuit rejecting ISPs' claims that the New York broadband price control law is subject to field preemption and conflict preemption.

The Supreme Court's prior order denying certiorari in NYSTA v. James is the subject of my blog post from December 18, 2024. Reconsideration was requested by the petitioners following the January 2, 2025, decision by the Sixth Circuit in In re: MCP No. 185. The Sixth Circuit's decision vacated the FCC's April 2024 order that reclassified broadband services as Title II "telecommunications services" and thereby left in place the agency’s prior order that classified broadband as a Title I "information service." The petitioners argued that the result in the Sixth Circuit constituted intervening circumstances substantial enough to warrant the granting of a rehearing and certiorari. But the Court declined to see it that way. 

 

New York's Affordable Broadband Act imposes price ceilings—a type of rate regulation—on broadband Internet service providers (ISPs) offering service in the state. Under the law, ISPs must offer low-income individuals plans of $15 per month and $20 per month. After being involved in litigation, the law finally went into effect on January 15 of this year. As a result of the Supreme Court's recent order, it appears the New York price control law will remain in effect for the foreseeable future. 

 

There are early signs that the New York law has unintended consequences for broadband competition and new deployments in that state. For more, see my February 20 FedSoc Blog post, "States Should Keep Broadband Internet Services Free From Price Controls."

2025 Will Be a Big Year for the FCC in the Courts

On December 16, the Federalist Society hosted a webinar panel event, "Is FTC Administrative Litigation Unconstitutional?" The webinar's panelists discussed the future of Federal Trade Commission's (FTC) litigation and enforcement in light of the Supreme Court's decisions in Axon Enterprise, Inc. v. FTC (2023) and SEC v. Jarkesy (2024) as well as in light of the Court's openness to revisit the contours of administrative power as reflected by decisions such as West Virginia v. EPA (2022) and Loper Bright Enterprises v. Raimondo (2024).

In Jarkesy, the Court held that the Seventh Amendment entitles a defendant to a jury trial when the Securities and Exchange Commission (SEC) seeks civil penalties for securities fraud. The Court determined that the SEC's antifraud provisions replicate common law fraud claims that must be heard by a jury. 

 

Although the Supreme Court's holding in Jarkesy was limited to the Seventh Amendment, the FedSoc webinar panel's discussion touched on two facets of the Fifth Circuit's holding in an earlier stage of the case. The Fifth Circuit held that Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise delegated power, thereby violating the U.S. Constitution's Article I Legislative Vesting Clause. Additionally, the Fifth Circuit held that statutory removal restrictions on SEC Administrative Law Judges (ALJs) violate the Take Care Clause of Article II. Shortly, the Supreme Court will likely tackle nondelegation claims, presidential removal power claims, and other claims brought in other cases against the FTC or other agencies – including the FCC.

 

Indeed, in 2025, the Supreme Court will review the Fifth Circuit's July 2024 en banc decision in Consumers' Research v. FCC. The Fifth Circuit concluded that the universal service contribution system violates the Article I Legislative Vesting Clause. The Court's grant of a writ of certiorari in Consumers' Research v. FCC is noted briefly in my blog post from November 26, 2024. The lower court's decision in the case, which was based on nondelegation principles and precedents, is the subject of my August 2024 Perspectives from FSF Perspectives, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause."

 

Furthermore, lower courts are likely to weigh in next year on Jarkesy implications for the FCC's enforcement authority. In April 2024, the FCC fined the three nationwide wireless providers for the sale of consumer location-related information. Legal challenges to the Commission's authority to levy those fines are now pending before the D.C. Circuit, the Second Circuit, and the Fifth Circuit. 

 

Added to all of these pending cases are anticipated judicial decisions about the legal fate of the FCC's Safeguarding and Securing the Open Internet Order regulating broadband Internet services as public utilities and the Commission'sDigital Discrimination Order subjecting broadband providers to liability for unintentional disparate impacts. Oral arguments in those respective cases have been held before the Sixth Circuit and the Eighth Circuit. 

 

In all, it looks like 2025 will be a big year for the FCC in the courts.   

High Court Declines to Hear Challenge to State-Level Rate Regulation of Broadband

On December 16, the Supreme Court issued an order denying a petition for certiorari in New York State Telecommunications Association v. James. The petition presented the question of whether the Communications Act preempts New York's broadband rate-regulation law. The Court's order leaves in place an April 2024 decision by the U.S. Court of Appeals for the Second Circuit rejecting ISPs' claims that the New York rate regulation law was subject to field preemption and conflict preemption. 

New York's Affordable Broadband Act imposes price ceilings – a type of rate regulation – on broadband Internet service providers (ISPs) offering service in the state. Under the state's law, ISPs must offer $15-per-month and $20-per-month plans to low-income individuals. 

 

My summary of the lower court's decision in NYTSA v. James is provided in my May 3 Perspectives from FSF Scholars, "Second Circuit Rejects Preemption Challenge to New York's Broadband Rate Regulation." As explained in my August 28 blog post, when the Second Circuit issued its decision in NYSTA v. James, it was widely expected to have a short life because the decision was based on the FCC's Title I "information services" classification of broadband Internet access services under the Restoring Internet Freedom Order. The court's decision was issued only a day after the agency repealed the RIF Order and made its Title II "telecommunications services" reclassification decision in the Securing and Safeguarding the Open Internet Order. 

 

However, the Sixth Circuit's August 1 order in MPC No. 185 Open Internet Rule has stayed the new Title II Order pending a decision on the merits in that case. Oral arguments in that case were held before the Sixty Circuit on October 31. Thus, broadband Internet access services remain Title I "information services" for now. Also, the electoral victory of President-elect Donald Trump and his nomination of Commissioner Brendan Carr to be the next Chairman of the FCC is likely to ensure that broadband services remain Title I "information services" for the foreseeable future. 

At this point, it is difficult to make predictions. As a result of the court's denial of certaiorari in NYSTA v. James, it appears that New York's rate regulation law may go into effect in the near future. But a newly-constituted FCC, under the leadership of Chairman Brendan Carr, is likely to take a different view about the preemptive effect of the Commission's Title I classification decision than the Second Circuit -- and may act on those views through a future declaratory ruling or by some other means. Due to the upcoming change in the Administration, NYTSA v. James is not likely to be the last word on the subject of federal preemption and state-level rate regulation of broadband services. 

USF Tax Hike – Now Up to 36.3%

On December 12, the FCC's Office of Managing Director announced that the Universal Service Fund (USF) contribution factor for the first quarter of 2025 will be 36.3%. Early Happy New Year to American consumers! The rate hike to 36.3% appears to be yet another all-time high for USF surcharges – something the U.S. Court of Appeals for the 5th Circuit rightly called an unconstitutional "USF Tax." Absent any unlikely intervention by the FCC's Commissioners, the proposed rate will go into effect. 

USF surcharges are functionally taxes paid by voice consumers on the long-distance part of their monthly bills. The money consumers pay is collected by the voice carriers and passed on to the Universal Service Administrative Company (USAC), the corporation established by the FCC to administer the USF program and dole out subsidies to program recipients. 

The upcoming 36.3% USF surcharge rate is significantly higher than just a few years ago. Free State Foundation President Randolph May wrote about the recent history of spiking USF surcharge rates and concerns about the viability of the USF contribution system in his blog post from June 14 of this year, "The Telephone Tax Rises Again – Now 34%." 

 

As observed in my November 26 blog post, the Supreme Court has granted a writ of certiorari in Consumers' Research v. FCC. The case, which will review an en banc decision by the 5th Circuit this summer, will be closely watched by many, including taxpayer advocates and opponents of the overreaching administrative state. In Consumers' Research v. FCC, the Court will decide the constitutionality of the USF contribution mechanism and the USF Tax.

Supreme Court Agrees to Hear Challenge to USF's Unconstitutionality

On November 22, the Supreme Court granted a writ of certiorari in Consumers' Research v. FCC. The case involves a constitutional challenge to the Universal Service Fund's (USF) contribution mechanism – or "USF Tax." The grant of certiorari is welcome news because it means that the court will resolve a circuit split between the Fifth Circuit. It also provides occasions for the court to clarify the doctrinal status and contours of the non-delegation doctrine. 

The roughly $8 billion annual USF subsidy program is funded by USF surcharges included as line items on the long-distance portion of voice consumers' monthly bills. Due to the increasing size of subsidy distributions and the shrinking size of the contributor base, the quarterly-adjusted surcharge rate has risen to 35.8% -- a much, much higher rate than just a few years ago. 

 

The Supreme Court will be reviewing the July 24 en banc decision by the U.S. Court of Appeals for the Fifth Circuit that determined the universal service contribution mechanism violates the Legislative Vesting Clause of Article I of the U.S. Constitution. The Fifth Circuit held that Congress's broad delegation of tax authority to the FCC under Section 254 of the Communications Act, combined with the agency's delegation of tax authority to a private entity to collect surcharges from voice carriers and administer the USF, constituted a constitutional violation. Fifth Circuit's en banc decision in Consumers' Research v. FCC, as well as the concurring and dissenting opinions, are summarized in my August 5, 2024 Perspectives from FSF Scholars, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause." 

 

The Sixth and Eleventh Circuits previously upheld the USF's contribution mechanism from identical challenges. The Supreme Court will resolve the split between the lower courts. And the court will have occasion to revisit the non-delegation doctrine, which is implicated by the case.  

 

In 2025, expect Free State Foundations scholars to have more to say about a future Supreme Court decision in Consumers' Research v. FCC and the need for Congress to modernize the USF for the broadband era. 

After Court Ruling on USF's Unconstitutionality, Congress Should Pass Reforms

On August 26, the U.S. Court of Appeals for the Fifth Circuit issued an order staying the issue of a mandate for its July 24 decision holding that the Universal Service Fund’s (USF) contribution mechanism – or "USF tax" – violated the U.S. Constitution's Article I Legislative Vesting Clause. The stay order anticipates that the FCC will be filing a petition for certiorari with the Supreme Court and that the stay will then be extended until the court final disposition.

The lengthy Fifth Circuit en banc decision in Consumers' Research v. FCC, as well as the concurring and dissenting opinions that were issued, are summarized in my August 5, 2024 Perspectives from FSF Scholars, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause."

 

My August 9 Perspectives from FSF Scholars, "Court Ruling on USF's Unconstitutionality Should Spur Reform in Congress" explained that Congress should not wait for the Supreme Court to act. As I wrote: 

Congress should act promptly to make the USF program fiscally sustainable and constitutionally sound for the broadband era. It should fund the USF via direct appropriations and intelligibly define broadband as a service eligible for support. If needed, Congress should consider requiring major online companies to make USF contributions under principles that limit subsidy amounts. Along with stronger curbs on waste and abuse, such reforms would preserve universal service, eliminate or at least reduce significantly the USF tax on consumers – which now stands at 34.4% – and enable future downsizing of the USF into a primarily voucher-like program supporting low-income consumers.

The Fifth Circuit's stay order avoids any sudden disruption to the USF program. It also provides window of time for Congress to exercise its authority and finally pass reforms that will modernize the USF program. Congress should make the program more efficient in supporting broadband access for those who are most deserving of help and ensure its future financial sustainability.   

ISPs Request High Court Ruling on State-Level Rate Regulation of Broadband

On August 10, a handful of trade associations representing broadband Internet service providers (ISPs) filed a petition for a writ of certiorari with the Supreme Court in New York State Telecommunications Association v. James. The petition presents the question of whether the Communications Act preempts New York's broadband rate-regulation law.

New York's Affordable Broadband Act imposes price ceilings – a form of rate regulation – on broadband ISPs offering service within the state. Under the New York law, ISPs offering service in the state must offer $15-per-month and $20-per-month plans to low-income individuals. 

 

On April 26 of this year, a Second Circuit panel's 2-1 majority rejected broadband ISPs' claims that the New York rate regulation law was subject to field preemption and conflict preemption. My summary of the court's decision in NYTSA v. James is presented in a May 3 Perspectives from FSF Scholars, "Second Circuit Rejects Preemption Challenge to New York's Broadband Rate Regulation."

 

At the time it was released, the Second Circuit's decision in NYSTA v. James was expected to be short-lived because the ruling was based on the FCC's Title I "information services" classification of broadband Internet access services under the Restoring Internet Freedom Order. The court's decision was issued a day after the Commission repealed the RIF Order and made its Title II "telecommunications services" reclassification decision in the Securing and Safeguarding the Open Internet Order. As I observed in a June 20 blog post, the petitioners in NYSTA v. James declined to file a petition for a rehearing en banc at the Second Circuit. They similarly declined to file a motion for reconsideration by the panel in light of the FCC’s new Title II Order. 

 

However, the legal ground shifted dramatically once again following the Supreme Court's decision in Loper Bright Enterprises v. Raimondo overturning the "Chevron doctrine" and especially after the Sixth Circuit's August 1 order staying the new Title II Order pending a decision on the merits in that case. For more, see Free State Foundation President Randolph May's August 23 Perspectives from FSF Scholars, "The Sixth Circuit Stays the FCC's Latest Net Neutrality Flip Flop."

 

On August 2, the petitioners in NYSTA v. James filed an emergency petition with Supreme Court Justice Sotomayor, seeking a stay on the Second Circuit's decision. On August 8, the petitioners filed a letter with an attached stipulated agreement by the parties. Under the stipulation, New York agreed to not enforce its rate regulation law pending the Supreme Court's decision on the ISPs' now-pending petition for a writ of certiorari. In their cert petition, filed on August 10, the ISPs renewed their arguments that New York's rate regulation law is subject to both field preemption and conflict preemption. According to the docket, New York is required to file its response by September 13.

 

For a critique of the Second Circuit's narrow understanding of conflict preemption, check out a May 10 Perspectives from FSF Scholars titled "Second Circuit Preemption Decision Won't Save New York Broadband Rate Regulation Scheme," by Law Professor Daniel Lyons, a member of the Free State Foundation's Board of Academic Advisors.  

Supreme Court Declines to Hear Case on Direct Copyright Infringement

On October 2, the Supreme Court denied certiorari in ABKCO Music, Inc. v. Sagan (2022). I wrote about this case in my September 20 Perspectives from FSF Scholars, "Supreme Court Should Clarify the Law on Direct Infringement of Copyrighted Works." By declining to grant review of the case, the court unfortunately passed up the opportunity to set the law straight that a defendant that orders and participates in an infringement can be liable for direct infringement even if the defendant did not personally perform the literal act of copying the copyrighted work. 

As explained in my Perspectives paper, the Second Circuit went off course in Sagan by improperly applying the "volitional conduct" requirement for direct infringement liability. The lower court wrote that "direct liability attaches only to 'the person who actually presses the button.'" But that is at odds with a copyright owner's "exclusive rights to do and to authorize" under Section 106 of the Copyright Act. As the Supreme Court observed, in Sony Corp. of America v. Universal City Studios, Inc. (1984), "an infringer is not merely one who uses a work without authorization by the copyright owner, but also one who authorizes the use of a copyrighted work without actual authority from the copyright owner."

 

By refusing to hear the case, the court lets stand the Sixth Circuit's decision that unduly narrows the traditional understanding direct infringement and that conflicts with decisions in at least other circuits. For instance, in Society of the Holy Transfiguration Monastery, Inc. v. Gregory (2012), the First Circuit emphasized that an infringer includes "one who authorizes the use of the copyright work without actual authority from the copyright owner" – quoting Sony. And in Lewis Galoob Toys, Inc. v. Nintendo of America, Inc. (1992), the Ninth Circuit recognized that "infringement by authorization is a form of direct infringement."

 

For now, it is to be hoped that other lower courts will decline to follow the Sixth Circuit's misapplication of the volitional conduct requirement and unduly narrow definition of direct infringement that undermines the ability of copyright owners to enforce their exclusive rights. 

Supreme Court Puts the Chevron Doctrine on a Death Watch

Yesterday, May 1, the Supreme Court, granting certiorari in Loper Bright Enterprises v. Raimondo, decided to consider overruling the decision that established the Chevron deference doctrine. In essence, Chevron requires that federal courts defer to reasonable interpretations of ambiguous federal laws. In reaction, Free State Foundation President Randolph May issued the following statement:

 

"For over a decade, I have suggested that the Chevron doctrine is in tension with fundamental separation of powers principles. Now, the Supreme Court has agreed to consider overruling Chevron “or at least clarify” that agency interpretations are not entitled to deference in some instances of “statutory silence." With a Court majority that is more attuned – and devoted to – foundational separation of powers principles, the Supreme Court's coming reconsideration of Chevron is welcome.

 

I do not mean to suggest that overruling Chevron should be considered a slam dunk, or that doing so will be without consequences for both Congress and the administrative state. While in theory, and occasionally in practice, the Chevron deference doctrine operated to affirm 'deregulatory' as well as 'regulatory' interpretations of the agency authority, in the real world of the administrative state, overall, more often than not, the doctrine led to judicial affirmance of agency decisions that expanded the boundaries of an agency's authority.

 

So, if Chevron is overturned or even narrowed meaningfully, one consequence is likely to be curbing the power of the administrative state. The other is that it may force Congress to take more responsibility for writing laws that more specifically delimit agency actions – that is, to write less ambiguous laws. Because Members of Congress, as elected representatives of the people, are directly accountable to the people in a way that unelected administrative agency officials are not, this increased political accountability comports with separation of power principles. [NOTE: The Supreme Court has already taken an important step in this direction with the adoption of the Major Questions Doctrine in West Virginia v. EPA (2022).]

 

Under our Constitution, in our tripartite system of separated powers, there will always be tensions among the three branches – Congress, the Executive, and the Judiciary – and legitimate questions regarding the extent of their respective powers. But as Chief Justice John Marshall proclaimed in the landmark case of Marbury v. Madison (1803): "It is emphatically the duty of the Judicial Department to say what the law is."

 

In a law review article published this year, NFIB v. OSHA: A Unified Separation of Powers Doctrine and Chevron's No Show, I concluded (with co-author Andrew Magloughlin) that Chevron "is on the verge of falling from grace in one way or the other." I suspect that the Supreme Court will overturn, or at least substantially curtail, the Chevron deference doctrine, and that when it does, Chief Justice Marshall's admonition, now over two centuries old, will play a prominent role in further reviving fundamental separation of powers principles."

 

*    *   *

 

Mr. May is a past Chair of the American Bar Association’s Section of Administrative Law and Regulatory Practice. He is a Fellow of the National Academy of Public Administration. Mr. May also has served as a Public Member of the Administrative Conference of the United States and currently is a Senior Fellow at ACUS. He has served as Associate General Counsel of the Federal Communications Commission. 

 

For decades, he has published extensively on administrative law, including the Chevron doctrine and the Major Questions doctrine. For background pertinent to the Chevron doctrine, see these law review articles:

 

Randolph J. May, NFIB. OSHA: A Unified Separation of Powers Doctrine and Chevron's No Show, South Carolina Law Review, Vol. 74, No. 2 (2022) (with Andrew K. Magloughlin)

 

Randolph J. May, Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox, Vol. 58, No. 2 (2006)

 

Randolph J. May, Defining Deference Down: Independent Agencies and Chevron Deference, Vol. 58, No. 2 (2006)