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Regulatory Comments I. Introduction Writing on behalf of the International Center for Law & Economics (“ICLE”), we thank the Federal Communications Commission (“FCC” or “the Commission”) for . . .
Writing on behalf of the International Center for Law & Economics (“ICLE”), we thank the Federal Communications Commission (“FCC” or “the Commission”) for the opportunity to respond to this notice of proposed rulemaking (“NPRM”). The Commission is considering whether to prohibit cable operators and direct-broadcast satellite (“DBS”) providers from imposing or enforcing fee for the early termination of a cable or DBS video-service contract, known as “early-termination fees” or “ETFs.”[1] The Commission also proposes requiring cable and DBS-service providers to grant subscribers a prorated credit or rebate for the remaining whole days in a monthly or periodic billing cycle after the cancellation of service.[2]
Nearly every U.S. household and organization likely has copious interactions with ETFs as a part of their daily lives. Your mortgage loan may have an ETF described as a “prepayment penalty.”[3] Your gym membership may have an ETF.[4] When you pay for your morning latte at the local coffee shop with your debit card, the shop owner likely has an ETF on the point-of-sale service that runs your card, as well as the merchant services that process the payment.[5] If you drive to work, your auto insurance likely has an ETF.[6] If you lease your car, there may be an ETF.[7] When you book your travel, you’ll find that most hotels charge a late-cancellation fee, which is just another name for an ETF.[8] Likewise, your doctor may charge a late-cancellation fee.[9]
Put simply, ETFs are ubiquitous. Consumers regularly consider and sign contracts with ETFs. In most cases, these consumers are fully aware of the ETF, because contracts with an ETF often have lower prices or rates than agreements without ETFs.[10] It’s a quid pro quo in which the consumer pays a lower rate in exchange for a promise to maintain purchases over a contracted time period. An ETF is the cost of breaking that promise.
In these comments, we focus on the economics of ETFs in the cable and DBS industries. In Section II, we discuss the contractual nature of ETFs, and why consumers benefit from—and willingly choose—contracts with ETF provisions. In Section III, we examine the relationship between ETFs and cable and DBS rates. We identify a direct link through the quid pro quo, and an indirect link through subscriber-acquisition costs, revenue projections, and investment returns. Because of these direct and indirect links, we conclude that ETFs are inextricably connected to rates to such a degree that they are central element of the rate structure, and cannot be disentangled from that structure.
Under this economic reasoning, the Commission should refrain from regulating cable-television ETFs. Moreover, even if the Commission has authority to ban ETFs, it would be harmful to consumers and providers to do so. Consumers who enter contracts with ETFs do so willingly with an expectation that they will pay a lower price over the term of their agreement than if they did not have such a contract. Producers benefit from reduced subscriber churn and uncertainty. Banning ETFs removes one dimension of consumer choice and provider competition. More importantly, a ban on ETFs will almost certainly lead to higher prices for cable and DBS consumers, the costs of which likely would swamp any speculated benefits of avoiding an ETF.
Critics of early-termination fees claim they are unpopular with consumers. Even so, many companies across many competitive industries offer services with ETF terms. Many consumers also purchase services with ETF terms, even when the seller offers an alternative with no ETF. Appearing before the FCC, a National Cable & Telecommunications Association (“NCTA”) representative testified that cable plans with ETFs are “always optional.”[11] At the time, NCTA estimated less than 10% of cable customers had minimum-term agreements.[12] DIRECTV’s representative testified that its DBS customers have a choice of plans either with or without an ETF.[13]
This raises the question of why consumers would enter into agreements with an ETF when non-ETF options are readily available, even from the same provider. The short answer is “different strokes for different folks.”[14] For consumers who enter an agreement with an ETF, the expected net benefits of such an agreement outweigh the expected net benefits of an agreement without an ETF. For consumers who choose a non-ETF agreement, the calculus is reversed.
One widely acknowledged consumer benefit of ETFs is that plans with an ETF typically have lower billing rates than plans without such a provision.[15] In 2020, New America and the Open Technology Institute calculated that the monthly cost of plans with ETFs were about $17 less costly than those without an ETF.[16] NCTA reported that “the amount many providers charge for ETFs is significantly less than the discount the customer is provided for agreeing to a term contract.”[17] Thus, all other things equal, a consumer who expects to remain with the same provider over the next 12 or 24 months would benefit from entering a contract with an ETF. On the other hand, a consumer who anticipates switching providers within that time period may benefit from a month-to-month agreement with no ETF.
The source of complaints about ETFs likely arises from a disconnect between expectations and actuality. That is, consumers who complain about having to pay an ETF may have been unaware of that provision in the agreement; had not anticipated that they would terminate the agreement early; had hoped that the ETF would not be enforced when triggered; or anticipated that a third party (such as a rival provider or employer) would pay the fee.
Some critics of ETFs suggest that many consumers subject to an ETF are unaware of these contractual provisions or of their terms. For example, a 2010 FCC survey reported that slightly more than half of respondents indicated they either didn’t know if their broadband provider charged an ETF or what the amount of the fee was.[18] These survey results, however, are unhelpful for the issue at-hand, as they do not address what share of households are subject to an ETF but unaware of it. If the key criticism of ETFs is consumer confusion or provider obfuscation, then the survey provides no useful information in answering whether this is the case.
The NPRM cites the 2008 testimony of consumers Harold Schroer and Molly White before the FCC’s hearing on ETFs.[19] Schroer testified that he never signed a contract with his provider and was unaware he agreed to an ETF provision.[20] In contrast, White testified that she knew when she entered her agreement with her provider that the contract specified an ETF, yet attempted to breach this provision.[21] Both White and Schroer were named plaintiffs in a class-action lawsuit regarding mobile ETFs.[22] In that matter, the judge noted that a California jury ruled in a previous class-action case that class members’ early termination was a breach of contract with their provider.[23] Based on these examples, there appears to be little evidence of widespread unawareness of contracts with ETF provisions.
Even if there were widespread consumer unawareness of, or confusion with, ETF provisions, recent FCC rules are expected to address this problem. This year, the Commission’s broadband “Nutrition Labels” rule will apply to all internet-service providers,[24] including cable and DBS providers.[25] The rules require that providers disclose any ETFs, when the fee is triggered, the maximum fee payable, and any pro-rationing of the fee, as well as a link providing details of early-termination policies.[26] FCC Chair Jessica Rosenworcel asserted the rules were a step toward ending “unexpected fees.”[27]
Many complaints about ETFs stem from unanticipated events that trigger the early termination.[28] White testified to the FCC that she terminated her mobile plan with Verizon because she accepted a job in a different state that provided her with mobile service.[29] DIRECTV briefly made national headlines for charging an ETF to a 102-year-old woman who died in the middle of her contract—although the provider quickly apologized and waived the fee.[30] Comcast attracted attention for charging ETFs to several business owners who cancelled their services after a flash flood destroyed their businesses.[31] Comcast remedied the issue by waiving the ETF and halting billing while the customers were without service.[32]
Most providers do not charge ETFs if a customer under contract moves to an address that is serviced by the provider and the customer maintains service with that provider at the new address.[33] We are not aware of any provider that charges an ETF in the event of a subscriber’s death.[34] NCTA reports that “[p]roviders also often waive ETFs for a variety of reasons.”[35] The examples of the 102-year-old woman and the flooded business are better characterized as idiosyncratic customer-service mishaps, rather than an indictment of ETFs generally.
Conversely, White’s ETF experience is an example of an ETF policy working as designed. She was aware of the ETF at the time she entered into the contract, moved to another state serviced by her existing provider, received a superior mobile plan through her employer, broke her contract, and paid a fee for doing so—despite her efforts to “dispute or reverse” the fee.[36]
The NPRM concludes that the Commission has wide discretion “to regulate the provision of direct-to-home satellite services” and “to impose ‘public interest or other requirements for providing video programming’ on DBS providers.”[37] In contrast, the FCC generally is prohibited from regulating cable-television rates.[38] As a workaround, the Commission claims it has authority to ban cable ETFs under its authority “to establish standards by which cable operators may fulfill their customer service requirements” which includes “communications between the cable operator and the subscriber (including standards governing bills and refunds).”[39]
Thus, whether the Commission has authority to regulate cable ETFs hinges on the crucial question of whether its proposal is a form of rate regulation (which is forbidden) or customer-service regulation (which is permitted). Unfortunately, Congress has provided no guidance, as the Commission notes: “The statute does not define the term ‘rates’ or explain the meaning of the phrase ‘rates for the provision of cable service.’”[40]
Nevertheless, the FCC has a lengthy history of using an expansive definition of rates when it has suited the Commission’s goals. For example, in the mobile market, the FCC has concluded that “the term ‘rates charged’ in [section 332(c)(3)(A)] may include both rate levels and rate structures for [cellular providers] and that the states are precluded from regulating either of these.”[41]
Perhaps because of this history, the Commission is now perplexed as to whether its proposed ETF regulations amount to rate regulation. On the one hand, the Commission “tentatively conclude[s] that Commission practice and precedent supports the notion that ETF regulations [] are not rate regulation.”[42] On the other, the NPRM asks whether “the elimination of ETFs alter the price of long term contracts,” specifically by “offer[ing] them at higher prices.”[43] It seems the Commission is seeking it have it both ways: acknowledging its proposed ban on ETFs could be tied to higher prices, while claiming that connection does not amount to regulating rates.
We expect numerous comments addressing the legal and plain0language definitions of what constitutes “rates for the provision of cable service.” In these comments, however, we focus on the economics of cable and DBS pricing. Put simply, the existence or absence of an ETF in an agreement is tied directly to the rates paid by the subscriber, as summarized by Ben Everard:
If nothing else, evaluating “rates” is a far more complicated undertaking than merely referencing cost per unit of time. “Rates … do not exist in isolation. They have meaning only when one knows the services to which they are attached.” It is therefore important to examine the context of the fee and the rate. In context, a fee which would otherwise seem to be isolated from the rate charged may in fact become a component of the rate if the fee is attached to a service reflected in the rate. The ETF is a “central element of the rate structure that compensates defendants for the upfront services they provide to their customers.” Without the ETF, the rate goes up. In this way, the ETF is part of the fee charged for a service rendered.[44]
Consumers who opt for a contract with an ETF receive valuable consideration in the form of discounted monthly rates, among other things. As noted above, NCTA testified that contracts with ETFs have a lower combined price over the life of the term.[45] One study estimates savings of about $17 a month on contracts with an ETF.[46] These lower rates are inextricably “attached” to the ETF. In the competitive MVPD and broadband environment, it would be impossible to eliminate ETFs without affecting rates. The ban on ETFs would therefore raise providers’ marginal cost per-subscriber, which would be expected to result in higher prices. Providers facing competitive pressures to avoid raising prices may instead exit unprofitable markets, reducing competition in those markets and leading to higher prices.
The Commission asserts that ETFs “mak[e] it costly for consumers to switch services during the contract term.”[47] Nearly a decade ago, then-FCC Chair Tom Wheeler recalled the fleeting period of aggressive long-distance pricing (when long-distance pricing mattered), hoping those giddy days would come to the broadband market:
Some of you are old enough—like me—to remember the long-distance telephone wars of the 1990s. Sign up with Sprint in April, switch to MCI in May, and then to AT&T in June. Choose any one of them, or others, in July. That is what a truly competitive telecommunications marketplace looks like. That is not the reality—even for “competitive broadband”—today.[48]
But yesteryear’s Wheeler and today’s Commission both miss the point. The purpose of ETFs is to make it costly to switch during the contract term. Providers base their pricing and investment decisions on their subscriber projections. They have a keen business and competitive interest in minimizing consumer switching, or churn. For long-term investments, providers need a greater degree of certainty than for short-term projects. Moreover, unlike long-distance service—which was as easy to switch as dialing 10-10-321, 10-10-345, or 1-800-COLLECT—switching cable or DBS providers typically requires the installation of costly equipment specific to the provider. For example, NCTA testified before the Commission:
Churn can have several costly effects on providers. There are advertising and marketing costs to recruit new customers. There are transaction costs associated with signing up and cancelling subscribers. There may be truck rolls to disconnect and connect service. And in the case of new services like Internet and telephone service, there may be more substantial installation costs than compared to traditional cable service. Moreover, churn results in uncertainty regarding the expected revenue and profit from particular customers. Long-term contracts can reduce these costs and uncertainty, promoting efficiency and investment. They can also enable operators to attract new customers and retain existing customers for their services.[49]
Churn can have several costly effects on providers. There are advertising and marketing costs to recruit new customers. There are transaction costs associated with signing up and cancelling subscribers. There may be truck rolls to disconnect and connect service. And in the case of new services like Internet and telephone service, there may be more substantial installation costs than compared to traditional cable service. Moreover, churn results in uncertainty regarding the expected revenue and profit from particular customers.
Long-term contracts can reduce these costs and uncertainty, promoting efficiency and investment. They can also enable operators to attract new customers and retain existing customers for their services.[49]
In its latest quarterly report to the Securities and Exchange Commission, DISH Network reported that it incurs “significant upfront costs to acquire Pay-TV” subscribers, amounting to subscriber-acquisition costs of $1,065 per new DISH TV subscriber.[50] The company also reported that it incurs “significant” costs to retain existing subscribers. These retention costs include upgrading and installing equipment, as well as free programming and promotional pricing, “in exchange for a contractual commitment to receive service for a minimum term.”[51]
In addition to substantial subscriber-acquisition costs, as NCTA noted above, churn creates uncertainty in expected revenues and profits. By imposing a cost for early termination, ETFs reduce the likelihood that consumers will break their contract during the term of the agreement. This, in turn, increases the reliability of providers’ longer-term revenue projections, upon which they make investment decisions.
In contrast, the Commission is clear that it expects—and hopes—that a ban on ETFs will increase churn.[52] Yet the NPRM draws no conclusions, nor solicits any comments, regarding whether and how a ban on ETFs would affect revenue projections, the reliability of those projections, and how those lower and less-reliable projections would affect investment.[53]
Banning ETFs can turn profitable customers into unprofitable customers, thus reducing providers’ expected revenues and placing pressure on providers to raise rates to maintain profitability. By increasing churn, a ban on ETFs increases the uncertainty in those projections and reduces providers’ confidence in their reliability. Because of the well-known and widely accepted risk-return tradeoff, firms facing increased uncertainty in investment returns (i.e., risk) will demand higher expected returns from consumers—through higher prices—to account for that higher risk.[54] Thus, the increase in uncertainty by itself will pressure providers to raise rates to improve risk-adjusted returns.
In summary, the economics of ETFs demonstrates that ETFs are so inextricably linked to rates that they cannot be disentangled into separate components. This linkage is made direct through the quid pro quo of offering lower rates to consumers to choose a contract with an ETF provision. The linkage is also indirect, through providers’ revenue projections and, in turn, investment decisions, which factor into rate calculations. Under this economic reasoning, the Commission should be prohibited from regulating cable television ETFs. But even if the Commission has authority to ban ETFs, it should not do so, because of the harms to both providers and consumers.
[1] Notice of Proposed Rulemaking, In the Matter of Promoting Competition in the American Economy: Cable Operator and DBS Provider Billing Practices, MB Docket No. 23-405 (Nov. 22, 2023) [hereinafter “NPRM”] ¶ 7.
[2] NPRM, ¶ 8.
[3] What Is a Prepayment Penalty?, Consumer Financial Protection Bureau (Sep. 9, 2020), https://www.consumerfinance.gov/ask-cfpb/what-is-a-prepayment-penalty-en-1957 (“A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home.”)
[4] Diana Kelly Levey, How to Cancel Your Gym Membership: 11 Things to Know About Contracts, Men’s Journal (May 6, 2022), https://www.mensjournal.com/health-fitness/how-to-cancel-your-gym-membership-11-things-to-know-about-contracts (“Many gyms charge a fee to cancel a membership. The cost can vary widely and is worth knowing about when you sign the contract.”).
[5] What Is an Early Termination Fee in a Merchant Agreement?, Host Merchant Services (2024), https://www.hostmerchantservices.com/articles/early-termination-fee (“Early termination fees come into play whenever a merchant terminates an agreement before the initial contract term has ended. These fees are meant to cover costs the vendor has already incurred by securing the merchant’s business and any upfront payments, setup fees, or ongoing minimums the merchant has committed to. The fees aim to compensate the vendor for losing that revenue early and potentially having to find a replacement merchant.”).
[6] Lizzie Nealon, When and How to Cancel Your Car Insurance Policy, Bankrate (Jun. 2, 2023), https://www.bankrate.com/insurance/car/get-refund-cancel-car-insurance, (“For example, some providers may require you to pay a cancellation fee or give a 30-day notice ahead of your cancellation date.”)
[7] Turning in a Lease Early? Here’s What You Need to Know, Chase (2024), https://www.chase.com/personal/auto/education/leasing/turning-in-a-lease-early (“An early termination fee is standard and, depending on the lessor’s standards and the terms of your lease agreement, may require payment of remaining lease payments, an amount equal to the difference between the remaining balance of your lease and the realized value of the car after sale, or other charges.”)
[8] Shine Colcol, Hotel Cancellation Policy: Complete Guide, Little Hotelier (Aug. 28, 2023), https://www.littlehotelier.com/blog/running-your-property/hotel-cancellation-policy.
[9] Alan A. Ayers, Are There Any Restrictions on an Urgent Care Provider Charging a No-Show or Cancellation Fee?, J. Urgent Care Med. (Feb. 28, 2021), https://www.jucm.com/are-there-any-restrictions-on-an-urgent-care-provider-charging-a-no-show-or-cancellation-fee (“Many primary care and specialty practices have a policy of charging a fee for missing an appointment (or a fee for cancelling with less than 24 hours’ notice). This fee can range from a modest $25 to upwards of $100.”).
[10] Indeed, this type of contract has long been a part of the common law. For example, a 2,200-year-old rental agreement from the Greek city of Teos in what is now modern-day Turkey specifies a steep penalty for a tenant backing out of the agreement. See, Translations of Hellenistic Inscriptions: 206, Rental Agreement for Precinct of Dionysas at Teos, Attalus (May 26, 2021), https://www.attalus.org/docs/other/inscr_206.html (“If the tenant does not ratify the contract on the day on which he is chosen or on the following day, we shall choose another tenant, and if the bid price is less, he shall owe ten times the difference to the lessors.”). Economically speaking, an ETF functions identically to an options contract, which protects an optionor from untimely revocation by the optionee, and typically prescribes damages in the event of such a breach. See, e.g., the Restatement (Second) of Contracts: An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer. § 25 (1981) The Restatement notes that in these contexts, disregarding the terms for future performance would “extend the option contract to subject one party to greater obligations than he bargained for.” Id. at comment D.
[11] Open Commission Meeting, Statement of Daniel Brenner, Sr. Vice President, Law & Regulatory Policy, National Cable & Telecommunications Association, FCC (Jun. 12, 2008), available at https://transition.fcc.gov/realaudio/presentations/2008/061208/brenner.pdf (“And most importantly, residential offers that may include ETFs are always optional, and they always convey value, in the form of lower combined price over the life of the term, to the customer. Whether it’s voice, video or data, a customer can always choose instead to go on a month-to-month basis—with the ability to change service providers whenever they choose, without charge. And more often than not, the advertised cable rates are month-to-month rates rather than rates offered only when a minimum term contract is required.”).
[12] Id. (An informal survey of our larger members indicates that only around 5 to 7% of triple play customers have elected minimum term agreements.)
[13] Open Commission Meeting, Testimony of John F. Murphy, Senior Vice President, Controller & Chief Accounting Officer, DIRECTV, FCC (Jun. 12, 2008), available at https://transition.fcc.gov/realaudio/presentations/2008/061208/murphy.pdf (“Among other options, consumers can currently choose to pay full retail price for equipment and installation with no ECF [early cancellation fee], or they can opt for free equipment and installation with either an 18 or 24 month commitment and a pro-rated ECF. When presented with this choice, consumers have given their answer—they overwhelmingly prefer no upfront payment. Clearly, our customers believe our ECF policy represents a significant value.”)
[14] See, George J. Stigler & Gary S. Becker, De Gustibus Non Est Disputandum, 67 Am. Econ. R. 76 (1977).
[15] Brenner, supra note 1. See also Ex Parte Comments of NCTA, MB Docket No. 23-405 (Dec. 6, 2023) [hereafter, “NCTA Ex Parte Comments”] (“ETFs are a term of a common business arrangement in which a customer receives a discounted offering for a specified period of time in exchange for a reasonable cancellation fee ….”).
[16] Becky Chao, Claire Park, & Joshua Stager, The Cost of Connectivity 2020, New America & Open Technology Institute (Jul. 2020) at 50, available at https://d1y8sb8igg2f8e.cloudfront.net/documents/The_Cost_of_Connectivity_2020__.pdf.
[17] NCTA Ex Parte Comments, supra note 14 at 2
[18] John Horrigan & Ellen Satterwhite, Americans’ Perspectives on Early Termination Fees and Bill Shock: Summary of Findings, FCC (May 2010), available at https://docs.fcc.gov/public/attachments/DOC-298414A1.pdf. (Reporting “38% said did not know whether they would have to pay a fee or not” and “[a]mong the 21% of home broadband subscribers who are subject to an ETF, nearly two-thirds (64%) do not know what their fee would be.”)
[19] NPRM, n. 33.
[20] Open Commission Meeting, Testimony of Harold Schroer, FCC (Jun. 12, 2008), available at https://transition.fcc.gov/realaudio/presentations/2008/061208/schroer.pdf.
[21] See, Open Commission Meeting, Testimony of Molly White, FCC (Jun. 12, 2008), available at https://transition.fcc.gov/realaudio/presentations/2008/061208/white.pdf (“I knew when I signed up for cellular service with Verizon that I was obligated to agree to the early termination fee” but “tried to dispute or reverse the charges.”)
[22] Cellphone Termination Fee Cases, 186 Cal.App.4th 1380, 1382 n.1 (Cal. Ct. App. 2010) (“Plaintiffs/respondents are Molly White, Christina Nguyen, Patricia Brown and Harold Schroer and are collectively referred to as ‘plaintiffs.’”)
[23] Id. at 1393 (Cal. Ct. App. 2010) (“She ignores, however, the verdict returned by the same jury on Sprint’s cross-complaint, finding that the plaintiffs had breached their contracts with Sprint” resulting in actual damages to Sprint caused by early termination.).
[24] Empowering Broadband Consumers Through Transparency, 37 FCC Rcd 13686 (15) (2022), available at https://docs.fcc.gov/public/attachments/FCC-22-86A1_Rcd.pdf [informally “Nutrition Labels” rule].
[25] Id., ¶ 16.
[26] Id., ¶ 34 and template at 13691.
[27] Empowering Broadband Consumers Through Transparency, CG Docket No. 22-2, Report and Order and Further Notice of Proposed Rulemaking (Jessica Rosenworcel statement, Nov. 14, 2022), available at https://docs.fcc.gov/public/attachments/FCC-22-86A2.pdf (“[B]y requiring that providers display introductory rates clearly, we are seeking to end the kind of unexpected fees and junk costs that can get buried in long and mind-numbingly confusing statements of terms and conditions.”)
[28] See, NPRM n. 29 (noting complaints to the FCC about ETFs triggered by subscribers moving to a new address or state).
[29] White, supra note 5.
[30] DirecTV Sends Family of Deceased 102-Year-Old Woman “Early Termination” Fee, Good Day Sacramento (Oct. 8, 2019), https://www.cbsnews.com/gooddaysacramento/news/102-year-old-directv-early-termination-fee.
[31] Ethan McLeod, After Complaints, Comcast Waives Termination Fees for Destroyed Ellicott City Business, WBFF (Aug. 4, 2016), https://foxbaltimore.com/news/local/after-complaints-from-destroyed-ellicott-city-businesses-comcast-waives-termination-fees.
[32] Id.
[33] See, e.g., XfinityMarcos, Reply to Early Termination Fee for Moving to a Non Service Area, Xfinity Community Forum (Feb. 2022), https://forums.xfinity.com/conversations/customer-service/early-termination-fee-for-moving-to-a-non-service-area/620c2368d5ffd22c1b568793?commentId=620c2907d5ffd22c1b5687b9.
[34] See, e.g., Again, Reply to Early Termination Fee for Moving to a Non Service Area, Xfinity Community Forum (Feb. 2022), https://forums.xfinity.com/conversations/customer-service/early-termination-fee-for-moving-to-a-non-service-area/620c2368d5ffd22c1b568793?commentId=620c3e4fd5ffd22c1b568826.
[35] NCTA Ex Parte Comments, supra note 5.
[36] White, supra note 5.
[37] NPRM, ¶ 5 citing 47 U.S.C. § 303(v) and 47 U.S.C. § 335(a).
[38] 47 U.S. Code § 543 (“No Federal agency or State may regulate the rates for the provision of cable service except to the extent provided under this section and section 532 of this title.”).
[39] NPRM, ¶ 9. See also, 47 U.S.C. § 552.
[40] NPRM, ¶ 12.
[41] Ball v. GTE Mobilnet, 81 Cal.App.4th 529, 538 (Cal. Ct. App. 2000), citing In re Southwestern Bell Mobile Systems, Inc. F.C.C. 99-356 (November 24, 1999), ¶ 20. [emphasis added] See 47 U.S.C. § 332(c)(3)(A) (“no State or local government shall have any authority to regulate the … rates charged by any commercial mobile service or any private mobile service, except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services”). See also, In re AT&T, 84 F.C.C.2d 158, 182 n.52 (1980) (“The pricing mechanisms employed to determine rates and charges as well as any interrelationships which exist among rate elements are part of rate structures.”) and Ibid.; accord AT&T, 74 F.C.C.2d at 235 (“Individual ‘[r]ate elements are the basic building blocks of rate structures.”)
[42] NPRM, ¶ 12.
[43] NPRM, ¶ 20.
[44] Ben Everard, Early Termination Fees: Fair Game or Federally Preempted?, 77 Geo. Wash. L. Rev. 1033 (2009), citing AT&T v. Cent. Office Tel. Inc., 524 U.S. 214, 223 (1998) and Joint Reply Memorandum of Points and Authorities in Support of Defendants’ Demurrers Re Early Termination Fee Claims at 3-7, In re Cellphone Termination Fee Cases, No. 4332, 2006 WL 3256037 (Cal. Super. Ct. June 9, 2006), rev’d, No. A115457, 2008 WL 2332971 (Cal. Ct. App. June 9, 2008). [emphasis added]
[45] Brenner, supra note 1.
[46] Chao, et al., supra note 6
[47] NPRM, ¶ 2.
[48] Tom Wheeler, Prepared Remarks of FCC Chairman Tom Wheeler “The Facts and Future of Broadband Competition,” FCC (Sep. 4, 2014), https://docs.fcc.gov/public/attachments/DOC-329161A1.pdf.
[49] Brenner, supra note 1.
[50] DISH Network Corporation, Quarterly Report (Form 10-Q) (Nov. 6, 2023), https://www.sec.gov/ix?doc=/Archives/edgar/data/1001082/000155837023017649/dish-20230930x10q.htm (“DISH TV SAC was $1,065 during the three months ended September 30, 2023 compared to $1,029 during the same period in 2022, an increase of $36 or 3.5%. This change was primarily attributable to higher installation costs due to an increase in labor and other installation costs, and a lower percentage of remanufactured receivers being activated on new subscriber accounts, partially offset by a decrease in advertising costs per subscriber.”)
[51] Id. (“We incur significant costs to retain our existing DISH TV subscribers, generally as a result of upgrading their equipment to next generation receivers, primarily including our Hopper® receivers, and by providing retention credits. As with our subscriber acquisition costs, our retention upgrade spending includes the cost of equipment and installation services. In certain circumstances, we also offer programming at no additional charge and/or promotional pricing for limited periods to existing customers in exchange for a contractual commitment to receive service for a minimum term. A component of our retention efforts includes the installation of equipment for customers who move.”)
[52] NPRM, ¶ 2, citing Executive Order 14036, 86 FR 36987 (July 9, 2021), §(l)(iv), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy (“prohibiting unjust or unreasonable early termination fees” would “enable[e] consumers to more easily switch providers”).
[53] The words “invest” or “investment” are absent from the NPRM. The closest the NPRM gets to expressing any interest in investment is its inquiry, “would a ban on ETFs limit entry by new providers by limiting their ability to recoup upfront costs through an ETF?” (NPRM, ¶ 22)
[54] See, Edwin J. Elton & Martin J. Gruber, Modern Portfolio Theory and Investment Analysis (4th ed, 1991).
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Read the full piece here.
TL;DR tl;dr Background: Created by Congress in 1914, the Federal Trade Commission (FTC) has employed in-house administrative adjudications for more than a century. The agency’s constitutionality . . .
Background: Created by Congress in 1914, the Federal Trade Commission (FTC) has employed in-house administrative adjudications for more than a century. The agency’s constitutionality was challenged early in its existence, and upheld by the U.S. Supreme Court in its 1935 Humphrey’s Executor decision. Federal courts have, in the years since, been hesitant to invalidate an agency that has been functioning without issue for decades.
But… Recent rulings in Seila (2020) and Axon (2023) have raised questions about the extent to which the Supreme Court would still recognize the agency’s legitimacy. In Seila, the Court held that Humphrey’s Executor applies only when an agency “do[es] not wield substantial executive powers.” In Axon, it held that federal courts can entertain constitutional challenges even while an administrative adjudication is pending.
Such rulings have paved the way for challenges to the FTC’s constitutionality. Most notably, Meta filed a challenge in November 2023 after the FTC sought to use administrative adjudication to modify a 2020 consent decree. Amgen brought a similar challenge in response to merger proceedings, as did Walmart during anti-fraud proceedings. Six primary arguments have been raised against the FTC’s constitutionality.
By statute, the president of the United States may remove commissioners of the FTC only “for inefficiency, neglect of duty, or malfeasance in office.” Humphrey’s Executor upheld this process, because the FTC was not deemed to exercise executive power.
But the FTC has changed dramatically over the past century. In the 1970s, Congress broadened its authority to pursue injunctive relief in federal court and to seek civil penalties, which would typically be considered executive functions. The agency now functions primarily as an enforcer of laws, and much more rarely exercises its quasi-judicial and quasi-legislative powers.
In short, there is a question whether the FTC, in its current form and operations, violates the constitutional separation of powers.
The FTC’s administrative-adjudication process has also raised constitutional questions. FTC staff may, following a preliminary screening, be authorized to investigate a potential violation of the law. That investigation, in turn, can lead commissioners to vote on whether to issue a complaint.
If it is not settled, the complaint is heard by an administrative law judge (ALJ) who, under recently revised agency process, issues a “recommended decision” to the commission. Previously, the ALJ would issue an “initial decision” that would stand unless the FTC or defendant sought review.
The FTC then decides whether to accept, revise, or wholly replace the recommended decision with one of its own. Serving as both a prosecutor and judge may violate the Fifth Amendment’s Due Process Clause.
Congress enabled the FTC to decide whether to pursue adjudication in federal courts or within its own administrative process. But under the Constitution’s nondelegation doctrine, when Congress delegates any of its legislative powers, it must provide an “intelligible principle” for an agency to use that power. Some of the recent challenges argue there is no such principle governing which avenue the FTC pursues, rendering the delegation of powers unconstitutional.
Among the broad powers conferred to the federal courts under Article III, Section 2 of the Constitution is exclusive jurisdiction to adjudicate private rights. But the FTC has been granted authority to hold administrative adjudications that can result in the deprivation of private rights (e.g., deprivation of property). Such proceedings may be unconstitutional.
The Seventh Amendment secures the right to jury trial whenever civil penalties exceed $20. This typically applies to deprivation of property rights, as well. But the FTC’s administrative adjudication does not provide for a jury trial.
Under the Hart-Scott-Rodino Act, mergers exceeding certain thresholds must be notified to both the U.S. Justice Department (DOJ) and the FTC. The agencies then follow a so-called “clearance” process to determine which will review the transaction. But the process is largely arbitrary, with some matters allocated based on one agency having more relevant experience, and some on a taking-turns basis.
Unlike the FTC, the DOJ can only challenge transactions before Article III courts, rather than in-house administrative proceedings. These alternative procedures have meaningful procedural and substantive differences. If that leads to disparate treatment, it may violate both the Fifth Amendment’s Equal Protection and Due Process clauses.
For more on this issue, see Daniel Gilman’s Law360 piece “Why Challenges To FTC Authority Are Needed.”
Scholarship Abstract This Appendix contains excerpts from the U.S. code of statutes relating to competition outside of the Clayton and Sherman Acts.
This Appendix contains excerpts from the U.S. code of statutes relating to competition outside of the Clayton and Sherman Acts.
Scholarship Abstract This Appendix contains descriptions of the antitrust laws of each state, with relevant statutory citations and some brief excerpts of more interesting provisions or . . .
This Appendix contains descriptions of the antitrust laws of each state, with relevant statutory citations and some brief excerpts of more interesting provisions or provisions with unusual language. States that align the interpretation of their antitrust laws to federal law are marked with an asterisk.
TOTM Five months from now, health ministers from the 194 sovereign states recognized by the United Nations (UN) will meet in Geneva to discuss and possibly . . .
Five months from now, health ministers from the 194 sovereign states recognized by the United Nations (UN) will meet in Geneva to discuss and possibly agree to amendments to the International Health Regulations (IHRs), which are intended to “prevent, protect against, prepare, control and provide a public health response to the international spread of diseases.” Ministers will also be asked to approve the text of a new World Health Organization (WHO) convention to combat future pandemics.
While there is a need to coordinate the detection of and response to potential pandemics, it is not clear what role, if any, the WHO should have. Perhaps more importantly, it is uncertain what policies should be put in place (and by whom) to prevent, limit, and respond to any future pandemic. The U.S. government should encourage the WHO to delay both changes to the IHRs and the introduction of a new treaty until several issues are satisfactorily resolved.
Popular Media Artificial intelligence (AI) is transforming the financial services industry. For tax neutral IFCs such as Cayman, Bermuda, and Jersey, it has the potential to increase . . .
Artificial intelligence (AI) is transforming the financial services industry. For tax neutral IFCs such as Cayman, Bermuda, and Jersey, it has the potential to increase competitiveness and facilitate economic diversification. The benefits could be enormous, but to realise this potential, jurisdictions will have to be open to the new technology. Two factors underpin such openness. First, enabling businesses to access the skills to ensure that AI can be implemented successfully and appropriately. Second, avoiding excessively prescriptive and precautionary restrictions on the development and use of AI.
Amicus Brief Interest of Amicus[1] The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has longstanding expertise evaluating law and policy.
ICLE has an interest in ensuring that First Amendment law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. ICLE scholars have written extensively in the areas of free speech, telecommunications, antitrust, and competition policy. This includes white papers, law journal articles, and amicus briefs touching on issues related to the First Amendment and common carriage regulation, and competition policy issues related to alleged self-preferencing by Google in its search results.
Google’s mission is to “organize the world’s information and make it universally accessible and useful.” See Our Approach to Search, Google (last accessed Jan. 18, 2024), https://www.google.com/search/howsearchworks/our-approach/. Google does this at zero price, otherwise known as free, to its users. This generates billions of dollars of consumer surplus per year for U.S. consumers. See Avinash Collis, Consumer Welfare in the Digital Economy, in The Global Antitrust Instit. Report on the Digital Economy (2020), available at https://gaidigitalreport.com/2020/08/25/digital-platforms-and-consumer-surplus/.
This incredible deal for users is possible because Google is what economists call a multisided platform. See David S. Evans & Richard Schmalensee, Matchmakers: The New Economics of Multisided Platforms 10 (2016) (“Many of the biggest companies in the world, including… Google… are matchmakers… [M]atchmakers’ raw materials are the different groups of customers that they help bring together. And part of the stuff they sell to members of each group is access to members of the other groups. All of them operate physical or virtual places where members of these different groups get together. For this reason, they are often called multisided platforms.”). On one side of the platform, Google provides answers to queries of users. On the other side of the platform, advertisers, pay for access to Google’s users, and, by extension, subsidize the user-side consumption of Google’s free services.
In order to maximize the value of its platform, Google must curate the answers it provides in its search results to the benefit of its users, or it risks losing those users to other search engines. This includes both other general search engines and specialized search engines that focus on one segment of online content (like Yelp or Etsy or Amazon). Losing users would mean the platform becomes less valuable to advertisers.
If users don’t find Google’s answers useful, including answers that may preference other Google products, then they can easily leave and use alternative methods of search. Thus, there are real limitations on how much Google can self-preference before the incentives that allowed it to build a successful platform unravel as users and therefore advertisers leave. In fact, it is highly likely that users of Google search want the integration of direct answers and Google products, and Google provides these results to the benefit of its users. See Geoffrey A. Manne, The Real Reason Foundem Foundered, at 16 (ICLE White Paper 2018), https://laweconcenter.org/wp-content/uploads/2018/05/manne-the_real_reaon_foundem_foundered_2018-05-02-1.pdf (“[N]o one is better positioned than Google itself to ensure that its products are designed to benefit its users”).
Here, as has been alleged without much success in antitrust cases, see United States v. Google, LLC, 2023 WL 4999901, at *20-24 (D. D.C. Aug. 4, 2023) (granting summary judgment in favor of Google on antitrust claims of self-preferencing in search results), the alleged concern is that Google preferences itself at the expense of competitors, and to the detriment of its users. See Complaint (“Google intentionally structures its Results Pages to prioritize Google products over organic search results.”). Ohio asks the court to declare Google a common carrier and subject it to a nondiscrimination requirement that would prevent Google from prioritizing its own products in search results.
The problem, of course, is the First Amendment. Federal district courts have consistently found that the First Amendment protects how providers structure search results. See, e.g., e-ventures Worldwide, LLC v. Google, Inc., 2017 WL 2210029 (M.D. Fla., Feb. 8, 2017); Jian Zhang v. Baidu.com Inc., 10 F. Supp. 3d 433 (S.D. N.Y., Mar. 28, 2014); Langdon v. Google, Inc., 474 F. Supp. 2d 622 (D. Del. 2007); Search King, Inc. v. Google Tech., Inc., 2003 WL 21464568 (W.D. Okla., May 27, 2003).
While Ohio and their amici argue that Google should be considered a common carrier, and thus be subject to a lower standard of review for First Amendment purposes, there is no legal basis for such a conclusion.
First, common carriage is a poor fit for Google’s search product. Courts have rejected monopoly power or being “affected with a public interest” as the proper prerequisites for common carrier status. Ohio, like other jurisdictions, has found that the “fundamental test of common carriage is whether there is a public profession or holding out to serve the public.” Girard v. Youngstown Belt Ry. Co., 134 Ohio St. 3d 79, 89 (2012) (emphasis added). See also Loveless v. Ry. Switching Serv., Inc., 106 Ohio App. 3d 46, 51 (1995) (“The distinctive characteristic of a common carrier is that he undertakes to carry for all people indifferently and hence is regarded in some respects as a public servant.”) (internal quotations omitted). Google simply does not carry information in an undifferentiated way comparable to a railroad carrying passengers or freight. It is rather a service that explicitly differentiates and prioritizes answers to queries by providing individualized responses based upon location, search history, and other factors.
Second, as mentioned above, Google’s search results are protected by the First Amendment, and simply “[l]abeling” Google “a common carrier… has no real First Amendment consequences.” Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727, 825 (1996) (Thomas, J., concurring in the judgment in part and dissenting in part). As this court stated, it is the nondiscrimination requirement sought by Ohio that is subject to First Amendment scrutiny, not the common carriage label itself. See Motion to Dismiss Opinion at 16. And any purported nondiscrimination requirement should be subject to strict scrutiny, as such a requirement would constrain Google’s own speech in the form of its carefully tailored search results, and not simply the speech of others.
There is a long history of common carriage regulation in this country. But there has not always been universal agreement on what constitutes the defining feature of a common carrier, with proposed justifications ranging from monopoly power (or natural monopoly) to being affected by the public interest. Over time, though, courts and commentators, including Ohio courts, have agreed that common carriage is primarily about holding oneself out to serve the public indiscriminately.
Simply put, Google Search does not hold itself out to, nor does it actually serve, the public indiscriminately by carrying information, either from users or from other digital service providers. It provides individualized and tailored answers to users’ queries, which may include Google products, direct answers, or general information its search crawlers have learned about other service providers on the Internet.
In its complaint, Ohio makes much of Google’s market share in search. See Complaint para. 19-32. Amici also argue that the “immense market dominance” of Google makes it a common carrier analogous to telegraphs or telephones. See Claremont Amicus at 6. Similarly, both Ohio and amici argue that Google’s search results are affected by a public interest. See Complaint at 40; Claremont Amicus at 3-4.
Whatever the market share of Google search, common law courts, including those of Ohio, do not find monopoly power to be a part of the definition of common carriage. For instance, the presence of competition for innkeepers did not mean they were not subject to requirements to serve. See Joseph William Singer, No Right to Exclude: Public Accommodations and Private Property, 90 Nw. U. L. Rev. 1283, 1319-20 (1996) (“On the monopoly rationale, it is important to note that none of the antebellum cases bases the duty to serve on the fact of monopoly. Indeed, the presence of competition was never a reason for denying the duty to serve in the antebellum era. In many towns, there were several innkeepers and cities like Boston had dozens of innkeepers. Yet, no lawyer, judge, or treatise writer ever suggested that innkeepers in cities like Boston should be exempt from the duty to serve the public.”). Nor does the presence of monopoly necessarily lead to common carriage treatment under the law. See Blake Reid, Uncommon Carriage, at 25, 76 Stan. L. Rev., forthcoming (2024) (“[F]irms holding effective monopolies or oligopolies in a wide range of sectors, including pharmacies and drug stores, managed healthcare providers, office supply stores, eyeglass sellers, airlines, alcohol distribution, and even candy are not widely regarded or legally treated as common carriers.”). Accordingly, Ohio does not define common carriage in relation to monopoly power. Cf. Kinder Morgan Cochin LLC v. Simonson, 66 N.E. 1176, 1182 (Ohio Ct. App. 5th Dist. Ashland County 2016) (failing to mention monopoly as part of the definition of common carrier).
Moreover, while older cases and commentators cite the “affected with a public interest” standard, courts have moved away from it because of its indeterminacy. See Biden v. Knight First Amendment Inst., 141 S. Ct. 1220, 1223 (2021) (Thomas, J., concurring) (this definition is “hardly helpful, for most things can be described as ‘of public interest.’”). See also Christopher S. Yoo, The First Amendment, Common Carriers, and Public Accommodations: Net Neutrality, Digital Platforms, and Privacy, 1 J. of Free Speech L. 463, 468-69 (2021).
Instead, the definition of common carriage under Ohio law is defined as holding itself “out to the public as ready and willing to serve the public indifferently.” See Kinder Morgan Cochin, 66 N.E. at 1182; Girard v. Youngstown Belt Ry. Co., 134 Ohio St. 3d 79, 89 (2012); Loveless v. Ry. Switching Serv., Inc., 106 Ohio App. 3d 46, 51 (1995).
With this definition in mind, Google is not a common carrier. Google does not offer an undifferentiated service to its users like a pipeline (like in Kinder Morgan Cochin) or railroad (like in Girard or Loveless), or even like a mall offering an escalator to customers (like in May Department Stores Co. v. McBride, 124 Ohio St. 264 (1931)). Nor does it offer to “communicate or transmit” information of “their own design and choosing” to users. See FCC v. Midwest Video Corp., 440 U.S. 689, 701 (1979) (defining common carrier services in the communications context). Instead, it offers a tailored search result to its users. See Complaint at paras. 17-18 (noting that search results depend on location); How Search work with your activity, Google (last accessed Jan. 18, 2024), https://support.google.com/websearch/answer/10909618 (“When you search on Google, your past searches and other info are sometimes incorporated to help us give you a more useful experience.”). This is not a common carrier in the communications context. See Midwest Video, 440 U.S. at 701 (“A common carrier does not make ‘individualized decisions, in particular cases, whether on what terms to deal.’”) (quoting Nat’l Ass’n of Reg. Util. Comm’rs v. FCC, 525 F.2d 630, 641 (D.C. Cir. 1976)).
For instance, if a user searches for restaurants, Google’s algorithm may not only take into consideration the location of the user, but also whether the user previously clicked on particular options when running a similar query, or even if the user visited a particular restaurant’s website. While the results are developed algorithmically, this is much more like answering a question than it is transporting a private communication between two individuals like a telephone or telegraph.
Importantly, users often receive a different result even for the same search. See Why your Google Search results might differ from other people, Google (last accessed Jan. 18, 2024), https://support.google.com/websearch/answer/12412910 (“You may get the same or similar results to someone else who searches on Google Search. But sometimes, Google may give you different results based on things like time, context, or personalized results.”). Google is clearly making “‘individualized’ content- and viewpoint-based decisions” when it comes to search results. Cf. Moody v. NetChoice, 34 F.4th 1196, 1220 (11th Cir. 2022) (quoting Midwest Video, 440 U.S. at 701).
While the court emphasized at the motion to dismiss stage that a reasonable factfinder could find Google offers to hold itself out to the public in its mission “to organize the world’s information and make it universally accessible and universal,” see MTD Opinion at 7, this does not “change [its] status to common carrier[]… unless [it] undertake[s] to carry for all people indifferently.” Loveless, 106 Ohio App. 3d at 52. As the above facts demonstrate, there is no basis for finding that Google search offers an undifferentiated product to its users. The court should find Google is not a common carrier under Ohio law.
Ohio ultimately seeks to restrict the ability of Google to favor its own products in its search results. But this runs into a real constitutional problem: search results are protected by the First Amendment.
Moreover, as this court has previously found, the First Amendment scrutinizes not the label of common carriage, but the burdens which come with it. Here, the nondiscrimination requirement Ohio asks for is what is at issue.
This nondiscrimination requirement is inconsistent with the First Amendment. While this court thought it should be subject to intermediate scrutiny, the First Amendment requires strict scrutiny when speech is compelled. The cases cited by the court are inapposite when a speaker is delivering its own message, i.e. search results, rather than simply hosting speech of others.
While no appellate court has considered the issue, several federal district courts have recognized search engines have a First Amendment interest in their search results. Some decisions have framed the results themselves as speech. Others have considered the issue as one of editorial judgment. But under either approach, Google Search results are protected by the First Amendment.
For instance, in Jian Zhang v. Baidu.com, 10 F. Supp. 3d 433 (S.D. N.Y. Mar. 28, 2014), the court found that the application of a New York public accommodations law to a Chinese search engine that “censored” pro-democracy speech is inconsistent with the right to editorial discretion. The court found that “there is a strong argument to be made that the First Amendment fully immunizes search-engine results from most, if not all, kinds of civil liability and government regulation.” Id. at 438. The court noted that “the central purpose of a search engine is to retrieve relevant information from the vast universe of data on the Internet and to organize it in a way that would be most helpful to the searcher. In doing so, search engines inevitably make editorial judgments about what information (or kinds of information) to include in the results and how and where to display that information (for example, on the first page of the search results or later).” Id. Other courts have similarly found search engines have a right to editorial discretion over their results. See also e-ventures Worldwide, LLC v. Google, Inc., 2017 WL 2210029, at *4 (M.D. Fla. Feb. 8, 2017); Langdon v. Google, Inc., 474 F. Supp. 2d 622, 629-30 (D. Del. 2007).
In this sense, Google’s search results are analogous to the decisions of what to print made by the newspaper in Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241 (1974), or the parade organizer in Hurley v. Irish-American Gay, Lesbian, & Bisexual Group of Boston, 515 U.S. 557 (1995).
At least one court has found that search results themselves are protected opinions. In Search King Inc. v. Google Technology, Inc., 2003 WL 21464568, at *4 (WD. Okla. May 27, 2003), the court found that search results “are opinions—opinions of the significance of particular web sites as they correspond to a search query. Other search engines express different opinions, as each search engine’s method of determining relative significance is unique.”
Under this line of reasoning, Google’s responses to queries are opinions directing users to what it thinks is the best answer given all the information it has on the user, her behavior, and her preferences. This is in itself protected speech. Cf. Eugene Volokh & Donald M. Falk, Google: First Amendment Protection for Search Results, 8 J. L. Econ. & Pol’y 883, 884 (2012) (“[S]earch engines are speakers… they convey information that the search engine has itself prepared or compiled [and] they direct users to material created by others… Such reporting about others’ speech is itself constitutionally protected speech.”).
In sum, the First Amendment protects Google’s search results.
Amici argued that because Google is a common carrier, the nondiscrimination requirement is merely an economic regulation that is not subject to heightened First Amendment scrutiny. See Claremont Amicus at 17. But the issue here is not simply the label of common carriage, it is the regulatory scheme sought by Ohio. Cf. Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727, 825 (1996) (Thomas, J., concurring in the judgment in part and dissenting in part) (“Labeling leased access a common carrier scheme has no real First Amendment consequences.”); MTD Opinion at 16 (“As for the State’s request for declaratory relief, merely declaring or designating Google Search to be a common carrier does not, of itself, violate the First Amendment or infringe on Google’s constitutional speech rights…. It is the burdens and obligations accompanying that designation that implicate the First Amendment.”).
In other words, when reviewing the nondiscrimination requirement sought by Ohio, the labeling of this as a common carriage obligation does not matter under the First Amendment.
Ohio and amici have characterized the nondiscrimination requirement that comes with common carriage as a content-neutral requirement to host the speech of others. See MTD Opinion at 16; Claremont Amicus at 15, 17. This court agreed that this was possible at the motion to dismiss stage. But the remedy sought is not content-neutral, nor is it dealing purely with the speech of others. As a result, it should be subject to strict scrutiny.
This court found that a “restriction of this type must satisfy intermediate scrutiny” as a “content-neutral restriction on speech.” MTD Opinion at 16. The court compared the situation to Turner Broadcasting System Inc. v. FCC, 512 U.S. 622 (1994). But the nondiscrimination requirement is clearly content-based.
Ohio is asking this court to enjoin Google from prioritizing its own products in its search results. See Complaint at para. 77. The only way to know whether Google is doing that is to consider the content of its search results. See, e.g., Reed v. Town of Gilbert, Ariz., 576 U.S. 155, 163 (2015) (“Government regulation of speech is content based if a law applies to particular speech because of the topic discussed or the idea or message expressed.”). The idea or message expressed here is that Google’s products would be a better answer to an inquiry than another. By definition, the nondiscrimination requirement is a content-based regulation of speech, and must therefore be subject to strict scrutiny.
Nor is this just an issue of the speech of others. This court stated that “infringing on a private actor’s speech by requiring that actor to host another person’s speech does not always violate the First Amendment.” MTD Opinion at 17. The court cited PruneYard Shopping Ctr. v. Robins, 447 U.S. 74 (1980), Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 547 U.S. 47 (2007), and Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969). But none of these cases deals with a situation analogous to applying nondiscrimination requirements to Google’s search results.
Here, as explained above, Google’s search results are themselves protected speech. Collectively, each search result is Google’s opinion of the best set of answers, in the optimal order, to questions provided by users to Google. Requiring Google to present different results, or results in a different order, or with different degrees of prioritization would impermissibly compel Google to speak, similar to requiring car owners to display license plates saying “Live Free or Die,” see Wooley v. Maynard, 430 U.S. 705 (1977), or forcing a student to stand for the Pledge of Allegiance, see West Virginia State Bd. of Educ. V. Barnette, 319 U.S. 624 (1943). It is, in short, impossible to require “Google [to] carr[y] all responsive search results on an equal basis,” Complaint at 5, without compelling it to speak in ways it does not choose to speak.
Even if Google’s interest in its search results is characterized as editorial discretion over others’ speech rather its own speech (a dubious distinction), this would still be distinguishable from the above cases. Google is clearly identified with its results by users, unlike the shopping center with its customers in PruneYard or the law schools with military recruiters in FAIR. See Complaint at paras. 48-50 (alleging that Google was built on expectations from users that the search algorithm was in some way neutral). This is especially the case when Google is, as alleged, prioritizing its own products in search results. See id. at paras. 64-70. Google clearly believes, and its users appear to agree, that these products are what its users want to see. See Complaint at 2 (“Google Search is perceived to deliver the best search results…”). Otherwise, those users could just use another service. Cf. Zhang, 10 F. Supp. 3d at 441 (a user dissatisfied with search results can just use another search engine).
Notably, this stands in contrast to the court’s characterization of the speech at issue. See MTD Opinion at 19-20 (“When a user searches a speech by former President Donald Trump on Google Search and that speech is retrieved by Google with a link to the speech on YouTube, no rational person would conclude that Google is associating with President Trump or endorsing what is seen in the video.”). It is not the content of the links that users associate with Google, but the search results themselves, which includes the order in which each link is presented, the presentation of certain prioritized results in a different format, and the exclusion or deprioritization of certain results Google thinks the user will not find relevant. A search engine is more than a “passive receptacle or conduit” for the speech of others; the “choice of material” and how it is presented in its search results “constitute the exercise of editorial control and judgment.” Tornillo, 418 U.S. at 258.
In sum, the reasons for subjecting must-carry provisions in Turner to intermediate scrutiny do not apply here. First, the nondiscrimination requirement sought by Ohio is not content-neutral; indeed, it is precisely Ohio’s dissatisfaction with the specific content Google provides that impels its proposed law. Cf. Turner, 512 U.S. at 653-55 (emphasizing the content-neutrality of the must-carry requirements). Second, Google must alter its message in its search results due to the regulation, as it is expressing a clear opinion that its own products are the best answer—an answer with which Google is identified and which distinguishes it from its search engine competitors. Cf. id. at 655-56 (finding the must-carry requirements would not force cable operators to alter their own messages or identify them with the speech they carry). Third, Google does not have the ability to prevent its users from accessing information, whether from other general search engines, specialized search engines, or just typing a website into the browser. Cf. Turner, 512 U.S. at 656 (“When an individual subscribes to cable, the physical connection between the television set and the cable network gives the cable operator bottleneck, or gatekeeper control over most (if not all) of the television programming that is channeled into the subscriber’s home… A cable operator, unlike other speakers in other media, can thus silence the voice of competing speakers with a mere flick of the switch.”). Absent these countervailing justifications for intermediate scrutiny in Turner, Ohio’s nondiscrimination requirement must be subject to strict scrutiny.
Finally, while it is true that economic regulation like antitrust law can be consistent with the First Amendment, see Claremont Amicus at 17 (citing Associated Press v. United States, 326 U.S. 1, 20), that does not mean every legal restriction on speech so characterized is constitutional. For instance, in Associated Press, the Supreme Court found the organization in violation of antitrust law, but in footnote 18 disclaimed the power to “compel AP or its members to permit publication of anything which their ‘reason’ tells them should not be published.” Associated Press, 316 U.S. at 20, n. 18. The Court echoed this in Tornillo to argue that the remedy sought by Florida’s right-to-reply law was unconstitutional government compulsion of speech that would violate the newspaper’s right to editorial discretion. See Tornillo, 418 U.S. at 254-58. Restricting Google’s right to editorial discretion over its search results is similarly unconstitutional.
Ohio’s attempted end-run of competition law and the First Amendment by declaring Google a common carrier must be rejected by this court. Google is not a common carrier. And the nondiscrimination requirement requested by Ohio is inconsistent with the First Amendment.
[1] Amicus state that no counsel for any party authored this brief in whole or in part, and that no entity or person other than amicus and its counsel made any monetary contribution toward the preparation and submission of this brief.
Presentations & Interviews ICLE Academic Affiliate Lynne Kiesling was a guest on the The Answer Is Transaction Costs podcast to discuss distributed energy resources (DERs) and the complex . . .
ICLE Academic Affiliate Lynne Kiesling was a guest on the The Answer Is Transaction Costs podcast to discuss distributed energy resources (DERs) and the complex regulatory frameworks that shape smart-grid technologies. The full episode is embedded below.
