Virtual Takings: The Coming Fifth Amendment Challenge to Net Neutrality Regulation

"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. …