On February 26, 2018, the U.S. Court of Appeals for the Ninth Circuit issued an en banc decision in FTC v. AT&T holding that the Federal Trade Commission (FTC) Act’s “common carrier” exemption is activity-based, reversing the panel’s decision that the exemption is status-based, which would have opened a large enforcement gap for telecommunications companies like AT&T. This is an important decision in terms of FTC jurisdiction: it means that the FTC can and will continue to regulate common carriers to the extent that they provide non-common-carrier services, such as mobile internet services.
Section 5 of the FTC Act gives the commission enforcement authority over unfair and deceptive acts or practices, but exempts “common carriers subject to the Acts to regulate commerce.” Unsurprisingly, the question of whether a company qualifies as a “common carrier” under the exemption is a loaded and complicated one. If an entity falls within the exemption, the FTC cannot bring an enforcement action against it for conduct it considers harmful to consumers. Conversely, companies that fall outside the exemption are subject to FTC regulation, leaving them open to liability for unfair or deceptive conduct, and requiring that they comply with a long list of FTC rules.
The FTC initially brought this case against AT&T in 2014 to address the company’s practice of “data throttling,” i.e., arbitrarily reducing customers’ broadband data speed without regard to actual network congestion. According to the FTC’s complaint, beginning in 2011, AT&T charged customers a premium for “unlimited” data plans while simultaneously throttling their data speed, in some cases by almost 90 percent, for nearly half of the 30-day billing cycle. The complaint alleged that, as a result of AT&T’s throttling program, millions of customers experienced extreme difficulty using, or were otherwise unable to use, many essential and everyday applications like web browsing, GPS navigation, and video streaming services. To make matters worse, according to the FTC’s complaint, when AT&T implemented its throttling program, it had conducted internal focus group research indicating that its program was inconsistent with consumer expectations of “unlimited” data plans. Furthermore, hundreds of thousands of customers complained to AT&T directly about their concerns with the throttling program. Nevertheless, AT&T continued to throttle customers’ speeds even if they used their cell phones at a time when AT&T’s network had more than enough capacity to carry their data.
Based on this conduct, the FTC levied two Section 5 charges against AT&T for: (1) unfair mobile data throttling, and (2) deceptive failure to disclose its mobile data throttling program. With respect to the first count, the FTC alleged that AT&T engaged in unfair acts or practices that caused substantial injury to consumers by entering into contracts advertised as “unlimited” mobile data plans while simultaneously throttling customers’ data speeds. Second, the FTC alleged that AT&T deceptively failed to disclose that it imposed significant and material data speed restrictions on unlimited mobile data plan customers in light of its representations that the amount of data customers could access in any billing period would be unlimited.
In response to these allegations, AT&T moved to dismiss the case on the basis that the FTC did not have the authority to bring Section 5 claims against it. Specifically, AT&T championed a “status-based” interpretation of the common carrier exemption, claiming that because it had the “status” of a common carrier under the “Acts to regulate commerce,” i.e., the Communications Act of 1934, it was entirely exempt from FTC regulations.1 The FTC, on the other hand, argued the exemption was “activity-based,” such that common carriers are only immune from FTC enforcement when the activity at issue is a common carrier activity. In other words, while AT&T claimed the FTC did not have the authority to police any of its services—including its “common carrier services” (i.e., telecommunications services) and “non-common carrier services” (i.e., mobile internet services)—the FTC argued the exemption only provided immunity with respect to AT&T’s common carrier services.
The U.S. District Court for the Northern District of California sided with the FTC, denying AT&T’s motion to dismiss the case and rejecting its arguments that the exemption is status-based and that the FTC lacks the authority to regulate mobile internet services. A Ninth Circuit panel reversed the district court’s decision, holding that the exemption was status-based, not activity-based. In the panel’s view, the plain language of the exemption cast it in terms of status, not activity, and Congress intended the exemption to apply to common carriers regardless of the category of activity challenged.
The Ninth Circuit en banc affirmed the district court’s denial of AT&T’s motion to dismiss, concluding that the phrase “common carriers subject to the Acts to regulate commerce” provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services. In reaching its decision, the court examined the text and history of the FTC Act and related laws, as well as judicial and agency interpretations of the phrase “common carrier.” In looking to the statutory text and judicial interpretations of common carriers, the court concluded that common carriers are not now, and never were, single-purpose entities engaged in only common carrier activities. With respect to agency interpretations of the phrase “common carrier,” the court noted that the FTC and FCC both advocated for an activity-based interpretation of the phrase. In the agencies’ views, an activity-based interpretation would ensure there is no gap in the federal regulation of telecommunications companies and maintain the regulatory harmony between the FTC Act and the Communications Act. The court agreed, stating, “[i]n the administrative context, two cops on the beat is nothing unusual.”
The implications of the court’s decision in this case are significant and far-reaching. First, the decision sets the record straight about the FTC and FCC’s concurrent jurisdiction over telecommunications companies. Specifically, the court made clear that the FTC can and will bring enforcement actions against entities that are predominantly regulated by the FCC. In explaining its justifications for the decision, the court pointed to the fact that the FTC is and has been the leading federal consumer protection and privacy enforcement agency for decades, and is therefore best suited to police unfair and deceptive conduct that affects non-common carrier services. In addition, the FTC Act—the law that created the agency in the first place—was deliberately passed for the purpose of giving a federal agency the authority to police unfair business conduct. In the words of Acting FTC Chairman Maureen Ohlhausen, the decision “ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests, including privacy protection, as well as stopping anticompetitive behavior.”
The court’s decision will also have a significant impact on the net neutrality debate, which recently made headlines when the FCC voted to repeal the 2015 Open Internet Order reclassifying mobile internet services as common carrier services under the Communications Act. In particular, the decision ensures that the FTC can step in as a watchdog over unfair and deceptive conduct in the context of mobile internet services if the FCC’s repeal of the 2015 Open Internet Order is upheld.
1 While the FTC Act does not define “common carrier,” under the Communications Act, “common carrier” means “any person engaged as a common carrier for hire, in interstate or foreign radio transmission of energy, except where reference is made to common carriers not subject to this Act; but a person engaged in radio broadcasting shall not, insofar as such person is so engaged, be deemed a common carrier.” 47 U.S.C. § 153(10).