En banc 9th Circuit hears arguments in AT&T ‘data throttling’ case

An en banc panel of the 9th U.S. Circuit Court of Appeals wrestled Tuesday with the 21st century implications of a law signed over 100 years ago by President Woodrow Wilson.

At the heart of the debate was a dispute over what constitutes “common carriers subject to the Acts to regulate commerce,” which are exempt from Federal Trade Commission policing under Section Five of the FTC Act of 1914.

The FTC sued AT&T Mobility LLC in 2014, alleging that AT&T’s data throttling policy and failed disclosure of it were unfair or misleading business practices.

Through data throttling, AT&T slowed the speed at which unlimited data users received coverage once they had reached a monthly limit. Before the FTC filed its suit, users who purchased unlimited plans were not told that their connections would be slowed once they reached the limit. AT&T now informs users of this practice.

But AT&T said it is not subject to FTC policing because it is exempt as a common carrier, a determination that AT&T argued should be made based on “status,” not particular “activity.” The mobile giant argued that it was exempt entirely from FTC regulation.

Several judges put this argument to the test on Tuesday. Federal Trade Commission v. AT&T Mobility LLC, 15-16585 (9th Cir., argued Sept. 19).

“Let’s say I’m some very large company not engaged in common carriage at all, to pick an example I’m Procter & Gamble, I’m regulated by the FTC and I don’t like it. I go out and I buy a small money-losing common carrier. Do I say, ‘Bye-bye FTC’ under your reading of the statute?” Judge William A. Fletcher queried.

“Our position is that if the company is a common carrier subject to the acts that regulate commerce, which AT&T Mobility is, that just as with banks and other entities named in Section 5, the FTC has no authority,” AT&T counsel Michael K. Kellogg responded, after Judge Susan P. Graber pressed him further on Fletcher’s question.

“The [Federal Communications Commission], however, has plenary authority to regulate common carriers,” Kellogg added.

He said that the FCC could direct a corporation to put common carriage activity into a subsidiary corporation to allow for separate regulatory policing.

Kellogg noted that the FCC fined AT&T $100 million for the same throttling policy in 2015.

“We’re happy to defend the FCC’s charges that … our program for restricting excessive data use is unlawful,” he told the court. “We’re happy to defend that, but we shouldn’t have to open a second front against the FTC when Congress has drawn such a clear distinction.”

The FTC countered that the Section 5 exemption applied to common carrier activity, and that before the FCC designated providing mobile data service as common carriage in 2015, companies like AT&T were subject to its authority.

FTC counsel Joel Marcus said that deciding the case in AT&T’s favor would create a regulatory gap.

“This case stands for a much broader proposition than the particular issue here, and this is what the FTC is worried about,” Marcus argued. “The status-versus-activity-based nature of the common carrier provision will apply everywhere. It won’t just apply to AT&T’s particular service in this case.”

Judge Alex Kozinski was skeptical. “I’m sorry, why couldn’t we have a ruling that’s limited to the facts of this case? Why would we have to have a ruling that covers any activity, any other kind of activity? Like if they decide to buy an airline or something.”

Kozinski rebuffed Marcus’ attempt to respond, saying that the problem was a “drafting issue.”

Whether the court’s eventual opinion is broad or narrow in scope remains to be seen, but judges on the panel did seem concerned with broader issues of regulatory interplay, particularly between agencies like the FTC, the FCC, the Food and Drug Administration, and the now-defunct Interstate Commerce Commission.

Graber and Judge M. Margaret McKeown pressed the lawyers on whether there could be overlapping regulatory agencies.

“What AT&T’s saying is there should only be one cop on the beat, but that’s not true,” Marcus said, going on to highlight the FTC’s interest in regulating companies like Verizon Communications Inc., which now oversees the personal data of millions of people through its ownership of AOL and Yahoo.

McKeown questioned whether the agencies were owed Skidmore deference in light of a memorandum of understanding between FCC and FTC in which the agencies said that the scope of common carrier exemptions does not preclude the FTC from addressing non-common carrier activities.

“The FTC and the FCC can get together all they want, but they can’t change the statute,” Kellogg responded. “They can’t change the division of authority that was established by Congress.”

However, the FCC’s position on this matter is somewhat uncertain. During the petitioning for en banc review, the FCC filed an amicus brief in support of the FTC, arguing that the 9th Circuit’s original decision would imperil the joint police duties of the FTC and FCC.

“The FCC and the FTC have long worked closely under their respective statutory charters to protect consumers,” the FCC’s lawyers wrote. “The panel’s decision injects substantial uncertainty into the authority underlying that longstanding cooperative relationship.”

But the FCC’s new chairman, Ajit V. Pai, has made it clear that he wants to declassify internet providers as common carriers, a point that Marcus said could be addressed later in the case.

The 9th Circuit’s original opinion, which came down in 2016, was in AT&T’s favor. Writing for a unanimous panel, Judge Richard R. Clifton said that AT&T’s status as a common carrier made it exempt from Section 5 of the FTC Act.

The panel ruled that companies designated as common carriers are exempt from Section 5 policing, even when their activities did not constitute common carriage.

Critics of the 2016 decision argued that removing companies like AT&T from the FTC’s purview would create a loophole, allowing large conglomerates to easily obtain common carrier status to avoid regulation.

“The court says that if you are a common carrier, you are immune from liability for unfair competition even if the unfair competition occurs in a completely different line of business,” Stanford Law Professor Mark A. Lemley commented when the decision came down.

“So a conglomerate like Virgin that owns airlines but also owns a music business would presumably be immune from FTC enforcement ... even for the parts of its business that had nothing to do with the airline,” Lemley added at the time.