9th Circuit revives FTC data-throttling suit against AT&T

In a victory for the Federal Trade Commission in its battle against AT&T Mobility LLC, the 9th U.S. Circuit Court of Appeals ruled en banc in the agency's favor Monday, reversing a three-judge panel's decision for the company.

The FTC's right to file a lawsuit against the company over its "data throttling" practice was a central question of the appeal. The answer provided direction to courts on how they should interpret unclear wording in the Federal Trade Commission Act of 1914. Federal Trade Commission v. AT&T Mobility LLC, 2018 DJDAR 1782.

AT&T had argued it enjoyed protection under Section 5 of the act, which exempts common carriers from FTC policing in the course of regular commerce. Such protections are status-based, AT&T argued, such that entities engaged in common carrier activities are entirely exempt from FTC jurisdiction.

That argument initially held sway in the 9th Circuit, as a conservative-leaning panel led by Judge Richard R. Clifton overturned the district court's order and granted AT&T's motion to dismiss in 2016.

Critics of the 2016 decision argued that removing companies like AT&T from the FTC's purview would create a loophole that would allow large conglomerates to easily obtain common carrier status to avoid regulation. But the court's unanimous en banc reversal on Monday should allay that concern.

Rather than status-based, the court found that common carrier protections are instead activity-based, meaning the exemptions only apply to common carriers so long as they are engaging in common carrier business.

Judge M. Margaret McKeown wrote in the court's opinion that the activity-based interpretation wasn't just informed by case law, it "also accords with common sense." As the leading federal consumer protection agency and the chief federal agency on privacy policy and enforcement, the FTC needs "broad enforcement powers" to act as intended by Congress, McKeown wrote.

The branching out of services offered by telecommunications companies like AT&T only underscores that need, the opinion said. "New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company," McKeown wrote.

Reaffirming FTC jurisdiction over activities that fall outside of common carrier services "avoids regulatory gaps and provides consistency and predictability in regulatory enforcement," McKeown wrote.

AT&T had also argued that the 2015 reclassification of broadband internet as a public utility should retroactively leave enforcement issues to the Federal Communications Commission, not the FTC.

But as the FCC isn't able to seek restitution for injured customers and its enforcement authority is limited to conduct going back one year, the court found that such a retroactive application "would strip the government of the opportunity to seek restitution on behalf of millions of customers affected by AT&T's data-throttling program."

Anita Taff-Rice, founder of the telecommunications law firm iCommLaw who is not involved in the case, said FCC Chairman Ajit Pai, whom she described as having been "extremely anti-regulation," supported the notion that the FTC, not the FCC, should investigate unfair business practices.

The FCC's unwillingness to back AT&T, coupled with the 2018 reclassification of mobile broadband as a non-common carrier service, might make further appeals not worth pursuing for the company, Rice said.

The ruling is especially important given the recent decision to repeal regulations that ensured all data on the internet be treated equally, known as net neutrality, coupled with the overall, anti-regulatory alignment of the current FCC, Rice said.

With the court's denial of AT&T's motion to dismiss, the underlying lawsuit filed by the FTC in 2014 continues. The lawsuit claims AT&T intentionally slowed the broadband speed of its unlimited data plan users once they'd reached a certain monthly limit without telling them, a practice more commonly known as data throttling, and seeks restitution for affected users. AT&T now informs consumers of this practice.

"Even though [a service provider] is allowed to block or throttle data since the net neutrality rules have been repealed, the fact that the FTC can investigate unfair or deceptive business practices of ISPs means that AT&T would have to disclose to consumers that it intended to block or throttle," Rice said. "Such disclosures may serve as an important deterrent to such behavior."

Mark A. Lemley, a Stanford Law School professor who is not involved in the case, agreed that "any hope of restraining anticompetitive conduct in the industry falls to groups like FTC" with the net neutrality appeal. He noted that the court's ruling appeared to dodge the question of whether the FCC's decision to abandon net neutrality is lawful.

Michael Kellogg, a partner at Kellogg, Hansen, Todd, Figel & Frederick LLP who served as counsel to AT&T, deferred comment to a company spokesperson who said the decision "does not address the merits of the case." The company said it is reviewing the opinion and continues "to believe we ultimately will prevail."

Acting FTC Chairman Maureen K. Ohlhausen issued a statement celebrating the decision, which she said ensures the FTC "can and will continue to play its vital role in safeguarding consumer interests."