Beware 'common carriers' after ruling in AT&T data-throttling case

CYBERSLEUTH

The 9th U.S. Circuit Court of Appeals has slammed shut the door on the Federal Trade Commission's (FTC) ability to act as a consumer watchdog for deceptive practices by "common carriers." In a recent opinion, FTC v. AT&T Mobility LLC, 2016 DJDAR 8990 (Aug. 29, 2016), the 9th Circuit held that AT&T Mobility (and presumably any common carrier) is immune from FTC oversight for any service or product they offer (not just regulated telecommunications), based on their status as a common carrier. The opinion was surprising because the 9th Circuit departed from a common-sense interpretation of the statutory language, case law in other federal circuits and a long line of FTC orders holding that the FTC has jurisdiction to oversee deceptive practices of carriers when they are engaged in unregulated activities.

The FTC has wide-ranging authority to investigate and prevent unfair and deceptive business practices under the Federal Trade Commission Act of 1914 (15 U.S.C. Section 45(a)). The statute, however, carves out certain industries from FTC jurisdiction, including "common carriers subject to the acts to regulate commerce." The Communications Act of 1934 and the subsequent Federal Telecommunications Act of 1996 (FTA) fall within the definition of "acts to regulate commerce" (15 U.S.C. Section 44), thus activities of common carriers covered in either act are clearly exempted from FTC oversight, as the lower court held.

The 9th Circuit's opinion resulted from AT&T Mobility's appeal of a lower court ruling that denied AT&T Mobility's motion to dismiss an FTC complaint alleging that AT&T Mobility's practice of data throttling was a deceptive practice. Data-throttling is a practice in which AT&T Mobility would drastically reduce the speed of mobile data for the rest of the month once a customer hit a certain threshold of data usage. The FTC alleged that the throttling was imposed even if it was not required to manage network congestion.

The case turned on whether the exemption in the FTC Act applied to common carrier activities, or whether the mere status of being a common carrier inoculates the carrier from all FTC oversight regardless of the activity. The lower court held that, based on the express language of the statute, the exemption applies only when a carrier is acting as a common carrier, meaning it is providing regulated telecommunications services. The lower court cited legislative history and case law from the U.S. Supreme Court (Kansas City S. R. Co. v. United States, 282 U.S. 760 (1931)), and the 2nd Circuit (FTC v. Verity Int'l, Ltd., 443 F.3d 48, 57 (2d Cir. 2006)) holding that statutory requirements or exemptions apply only to activities regulated by the statute. AT&T Mobility, however, argued that its status as a common carrier gave it immunity from the FTC for all activities of any type, and the 9th Circuit agreed.

The 9th Circuit dismissed the legislative history directly related to the common carrier exemption and the lengthy recitation of case law in the lower court's opinion, holding that those authorities "do not show that when Congress used the term 'common carrier' in the FTC Act, it could only have mean 'common carrier to the extent engaged in common carrier activity.'" This holding runs directly contrary to the explicit language in the statute "subject to the acts to regulate commerce." The language seems clear that Congress did not intend to exempt common carriers from activities that were not subject to the Communication Act or FTA.

Indeed, the 9th Circuit's analysis did not turn on the actual language in the act related to common carrier; rather, it rested on the absence of language. The 9th Circuit was persuaded by AT&T Mobility's argument that an amendment of the FTC Act related to the meat packing industry demonstrated that Congress intended to exempt common carriers based on status rather than activities. The FTC Act initially exempted meat packers "subject to" the Packers and Stockyards Act of 1912. The FTC Act was subsequently amended to add the phrase "insofar as they are" subject to the Packers and Stockyards Act. The 9th Circuit held that the "insofar as" language was "clearly indicative of an activity-based approach," and necessarily must have meant that Congress intended all other enumerated industries to be exempted from the FTC Act based on their status, not their activities.

While it is true that many of the other enumerated entities subject to the exemption are based on a description of the industry (i.e., banks, savings and loan institutions and federal credit unions) Congress added the phrase "subject to the Acts to regulate commerce" to the common carrier exemption. If a common carrier's activity isn't "subject to the Act" then it explicitly does not fall within the exemption.

Interestingly, during the course of the case, the Federal Communications Commission (FCC) changed the regulatory status of mobile broadband data changed from non-common carrier to common carrier service subject to Title II of the Communications Act. Thus, even if the 9th Circuit had not ruled that common carriers are totally exempt from FTC oversight, it appeared that AT&T Mobility's policy of throttling mobile broadband would no longer be subject to FTC jurisdiction going forward. The 9th Circuit declined to rule on the question of whether the FTC's complaint would have remained valid for the period prior to the reclassification of mobile broadband.

The 9th Circuit's opinion expressly noted that the FCC has not only applied the Communications Act to mobile broadband, but it announced in 2015 that it was seeking a $100 million fine against AT&T Mobility for its data throttling practices. The FCC ruled that it was "misleading and inaccurate" for AT&T Mobility to claim that customers' data plans were "unlimited" when the data plan was "in fact subject to prolonged speed reductions after a customer used a set amount of data." (Notice of Apparent Liability for Forfeiture and Order, 30 F.C.C. Rcd. 6613 (2015).) The reference to the FCC's action against AT&T Mobility was not necessary to its analysis of the FTC complaint, so it seems reasonable to conclude that the 9th Circuit wanted to make clear that consumers would not be unprotected despite its decision to shield AT&T Mobility from FTC oversight. The problem is that the FTC has authority to force companies to make restitution to consumers, but the FCC does not. AT&T Mobility has opposed the FCC fine, but even if the FCC imposes a fine on AT&T Mobility for data throttling, consumers will not receive refunds. Rather, the penalty goes to the U.S. Treasury.

The effect of the 9th Circuit's opinion remains to be seen. The FTC is reported to be considering whether to appeal to the U.S. Supreme Court. In the interim, however, consumers in California will have to resort to litigation - either by filing a complaint at the FCC, or perhaps a contract-based complaint in court - to seek relief from deceptive or unfair practices of common carriers.

Anita Taff-Rice is the founder of iCommLawTM, a law firm specializing in telecommunications and technology based in the San Francisco Bay Area. You can reach her at anita@icommlaw.com.