Virtual takings: the coming Fifth Amendment challenge to net neutrality regulation.

AuthorLyons, Daniel A.

"Net neutrality" refers to the principle that broadband providers should not limit the content and applications available over the Internet. Long a rallying cry of techies and academics, it has become one of the central pillars of the Obama Administration's telecommunications policy. The Federal Communications Commission's efforts to regulate the "onramp to the Internet" have attracted significant attention from the telecommunications industry and the academic community, which have debated, among other things, whether the proposed restrictions violate broadband providers' First Amendment rights. But there is an additional constitutional implication of net neutrality that has not yet been sufficiently addressed in the scholarly literature: the Takings Clause.

This Article argues that under the Supreme Court's Takings Clause jurisprudence, the Commission's proposed net neutrality rules effect a permanent physical occupation of private broadband networks and therefore take broadband providers' property without just compensation. In essence, net neutrality would grant Internet content providers a permanent virtual easement across privately owned broadband networks to deliver content to end-users. It thus would deprive broadband providers of the right to exclude others from their networks--a right that the Court's takings jurisprudence has repeatedly dubbed "one of the most essential sticks in the bundle of rights that are commonly characterized as property." (1) At the very least, the Takings Clause issue raises a serious constitutional question regarding the Commission's authority to adopt net neutrality regulations without clear authority from Congress to do so. The Commission should therefore seek explicit congressional approval before promulgating net neutrality rules, rather than continuing to freelance at the periphery of its regulatory authority.

INTRODUCTION I. BROADBAND DEVELOPMENT AND THE NET NEUTRALITY DEBATE A. The Telecommunications Act of 1996 B. The Growth of Broadband C. The "Open Access" Debate D. Origins of Net Neutrality E. Lurching Toward a Net Neutrality Policy F. The Open Internet Initiative and the "Third Way" 1. The Open Internet Initiative 2. The Comcast Decision 3. The "Third Way" Proposal II. NET NEUTRALITY THROUGH THE LENS OF THE TAKINGS CLAUSE A. Overview of Regulatory Takings Jurisprudence B. Net Neutrality as a Per Se Taking Under Loretto 1. Net Neutrality Effects a Permanent Physical Occupation of Broadband Networks 2. Fifth Amendment Protection of Electronic Networks 3. The Cablevision Decision C. Net Neutrality as a Regulatory Taking Under Penn Central 1. Interference with Investment-Backed Expectations 2. Economic Impact 3. Character of the Government Action D. Distinguishing Common Carriage and Public Accommodations 1. Common Carriage 2. Public Accommodations Rules III. RAMIFICATIONS FOR THE "OPEN INTERNET" INITIATIVE AND THE "THIRD WAY" PROPOSAL CONCLUSION INTRODUCTION

Born in the nether world of law review articles and academic conferences, net neutrality has quickly matured to become one of the Obama Administration's defining telecommunications issues. The Federal Communications Commission has proposed rules (2) to regulate what new Chairman Julius Genachowski has described as the "on ramp to the Internet": the privately held telecommunications networks that connect individual consumers to the Internet's public servers. (3) Termed the "Open Internet" Initiative, these proposed rules would limit the discretion of broadband providers such as Verizon, AT&T, and Comcast to regulate the terms of access to their networks by Internet content providers such as Google and Hulu. (4)

Proponents of net neutrality have long argued that such restrictions are necessary to prevent broadband providers from leveraging their market power to adversely affect Internet development and operation. (5) Net neutrality opponents, however, have questioned the practical effects of such proposals and have argued that, for the most part, net neutrality seems to be a solution in search of a problem. (6) Opponents also recognize that billions of dollars have been invested over the past decade to build a high-speed broadband network, and much more is still required to achieve the Administration's goal of ubiquitous broadband access. (7) Such investment is retarded by regulations that restrict broadband providers' ability to recover these costs through enhanced services or tiered-access pricing. With the promulgation of the Commission's "Open Internet" notice of proposed rulemaking8 and its follow-up notice of inquiry regarding the Framework for Broadband Internet Service, (9) this debate has finally spilled over from the pages of law reviews and onto the docket of the government's chief telecommunications regulator, the Federal Communications Commission.

The net neutrality debate has also at times assumed a constitutional dimension, focusing primarily upon dueling First Amendment concerns. Net neutrality proponents highlight the right of consumers to send and receive virtual speech free of "censorship" by broadband providers, in the form of blocked or degraded transmission of certain Internet applications or content. (10) Others argue that net neutrality would infringe upon broadband providers' own First Amendment rights to speak and engage in editorial control of content distributed over their networks. (11) While the Supreme Court has recognized First Amendment protection for network operators in similar contexts, (12) it is unclear how these decisions apply in the net neutrality context.

But there is an additional constitutional limitation whose import has not been sufficiently addressed in the net neutrality literature: the Takings Clause. The "Open Internet" Initiative would compel broadband providers to provide third parties access to their networks, and to do so on the same terms as the broadband providers' own proprietary content. Net neutrality thus deprives broadband providers of the right to exclude others from their networks--a right that the Court's takings jurisprudence has repeatedly dubbed "'one of the most essential sticks in the bundle of rights that are commonly characterized as property.'" (13) In essence, net neutrality grants content providers a permanent virtual easement across privately owned broadband networks to deliver content to end-users. In other contexts, the Supreme Court has made clear that "a 'permanent physical occupation' has occurred [for Fifth Amendment purposes] where individuals are given a permanent and continuous right to pass to and fro" across private property. (14) Net neutrality proponents may be correct that "[u]nder the First Amendment Congress can make both telephone and cable companies into common carriers who must take on all traffic" and therefore as a constitutional matter, "Congress can certainly require a much milder non-discrimination requirement like network neutrality." (15) But "[i]t is a separate question ... whether an otherwise valid regulation so frustrates property rights that compensation must be paid." (16)

This Article argues that under the Supreme Court's Takings Clause jurisprudence, the Commission's proposed net neutrality rules likely effect a permanent physical occupation of private broadband networks and therefore constitute a per se taking of broadband providers' property. Alternatively, net neutrality may constitute a regulatory taking under the Penn Central ad hoc balancing test. (17) If so, the Commission lacks the authority to adopt its proposed regulations because it cannot assure that just compensation will he paid to broadband providers. At the very least, the Takings Clause issue raises a serious constitutional question regarding the Commission's authority to adopt net neutrality regulations sua sponte, particularly when combined with potential First Amendment issues and the D.C. Circuit's recent skepticism regarding the Commission's authority to regulate Internet providers. Given this serious constitutional question, this Article recommends that the Commission seek explicit congressional authorization for its "Open Internet" Initiative rather than pursuing net neutrality on its own initiative by reclassifying broadband Internet service as a Title II telecommunications service.

  1. BROADBAND DEVELOPMENT AND THE NET NEUTRALITY DEBATE

    Before examining the constitutional implications of the Commission's recent foray into net neutrality, it is helpful to chart a brief history of the development of the broadband network and the advent of the net neutrality debate.

    1. The Telecommunications Act of 1996

      In one sense, the origins of net neutrality concerns lie in the Telecommunications Act of 1996, (18) Congress's attempt to overhaul the telecommunications industry to meet the anticipated challenges of the twenty-first century. (19) At the time, the wire-based telecommunications industry was divided into two discrete "monoline" segments: wireline telephone companies, which offered voice service as a common carrier over the publicly switched telephone network under Title II of the Communications Act of 1934, (20) and cable companies, which offered wire-based video service under Title VI of the Act. (21)

      Before the 1996 Act, a quarter-century of regulatory policy had reinforced the sharp voice/video divide in the telecommunications industry. The Commission had enforced a general ban on cross-ownership of telephone and cable networks since 1970, with limited exceptions. (22) The Cable Communications Policy Act of 1984 (23) expanded and reinforced this ban by generally prohibiting common carriers, such as the local telephone companies, from providing video programming over their networks. (24) Similarly, most local telephone companies had received exclusive telephone franchises from states in exchange for rate regulation and universal service obligations, with the Commission's blessing. (25)

      The 1996 Act sought to infuse the...

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