Understanding the Ninth Circuit’s Decision in AT&T Mobility v. FTC

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The Ninth Circuit issued a fairly important decision limiting the authority of the Federal Trade Commission (FTC). Unfortunately, articles such as this from CNET, combined with some overwrought commentary, have generated a lot of confusion.

To summarize:

  1. This has nothing to do with the Federal Communications Commission’s determination to reclassify broadband as Title II. The court was extremely explicit on this point.
  2. There is no “gap in consumer protection” for broadband services – unless Congress or a future FCC reverses the Title II determination. As long as broadband remains a Title II service, the FCC can protect consumers from bad behavior by broadband service providers.
  3. Beyond the broadband world, the case has fairly broad and uncertain applications. Arguably, Google could escape FTC jurisdiction by owning Google Fiber, and Amazon could escape FTC jurisdiction by registering its truck fleet as a common carrier freight company regulated by the FMCSA.

Background:

Section 5 of the Federal Trade Commission Act (FTCA), codified at 15 U.S.C. § 45, authorizes the FTC to prevent “unfair or deceptive acts” affecting commerce. Section 5(a)(2) contains a list of businesses exempt from FTC authority. This includes banks, airlines and, of relevance here, “common carriers subject to the Acts to regulate commerce.”

As everyone in telecom policy knows, any service the FCC regulates as a Title II telecommunications service is a “common carrier” service. That was the whole point of reclassifying broadband as a Title II service. As the D.C. Circuit explained in 2014, the only way the FCC could have effective network neutrality rules was to reclassify broadband as Title II.

Importantly for this case, however, the FCC did not issue its Order reclassifying broadband as a Title II common carrier service until February 2015, and the order did not go into effect until June 12, 2015. So until June 12, 2015, mobile broadband services were a Title I “information service.” Not only was mobile broadband not common carrier service, but the relevant statute, 47 U.S.C. § 332, positively prohibited the FCC from treating mobile broadband like a common carrier until it reclassified mobile broadband on June 12, 2015.

On October 28, 2014, (and I stress again, this was before the FCC reclassified broadband as a Title II common carrier service), the FTC filed a complaint against AT&T Mobility, LLC (the part of AT&T that provides mobile service). As explained in this old Washington Post article, the FTC alleged that between 2011 and 2014, AT&T had failed to make adequate disclosures about how it throttled subscribers on grandfathered “unlimited” data plans. For example, AT&T failed to adequately explain that it could slow supposedly unlimited plans to only 10% of the advertised speed for up to 12 days when it felt like it. Even the FTC’s Republican Commissioners, Commissioner Olhausen and then-Commissioner Joshua Wright, applauded the enforcement action as proof the FTC could adequately protect consumers from abuses by broadband providers. (Wright would later repeat this claim in Congressional testimony.)

According to the Ninth Circuit Court of Appeals, however, not so much.

Status v. Activity

As noted above, Section 5 of the FTCA exempts common carriers from FTC authority. AT&T did not argue that the FTC had no authority to go after its broadband practices because broadband was a common carrier, because broadband in the time covered by the complaint wasn’t a common carrier service. Rather, AT&T Mobility argued that because it offered regular plain old mobile voice service, a common carrier service as defined by Section 332 of the Communications Act, it was totally exempt from FTC authority even as to its non-common carrier activities.

In other words, AT&T Mobility argued that once a company acquires the “status” of a common carrier for any line of business, it becomes exempt under Section 5(a)(2)’s language exempting “common carriers subject to the Acts to regulate commerce.” This exemption, based on the “status” of the entity as a common carrier, applied to the entity’s non-common carrier businesses as well. So although broadband was (say it again) not a common carrier service, it was exempt from FTC jurisdiction because of AT&T Mobility’s “status” as a common carrier provider mobile voice service.

The Federal Trade Commission argued that the exemption was not intended by Congress to apply on the basis of status but of “activity.” When an entity is actually engaged in a common carrier activity, like providing Title II voice service, then the exemption applies. But when the same entity provides a non-Title II service, like mobile broadband between 2011-2014, then the FTC can apply Section 5 because the entity is not “subject to the acts to regulate Commerce” for its not common carrier activities. (As noted above, the Communications Act explicitly prohibits the FCC from regulating a common carrier’s non-common carrier activities as common carriage.)

Although the federal district court sided with the Federal Trade Commission, the Ninth Circuit Court of Appeals sided with AT&T Mobility. If an entity acquires the “status” of a common carrier (or one of the other exempt businesses), then that status likewise protects the non-common carrier activities as well. So although mobile broadband was not a common carrier service at the time, AT&T’s status as a provider of common carrier voice service shielded it’s non-common carrier broadband service from FTC jurisdiction.

“Help Us FCC, You’re the Consumer’s Only Hope.”

Contrary to what those who oppose FCC jurisdiction over broadband service would like to people to think, there is no “gap” in consumer protection for broadband services. The FCC retains not merely specific direction from Congress to protect broadband privacy under 47 U.S.C. § 222, but broad consumer protection authority under 47 U.S.C. §§ 201(b) and 202(a). Mind you, Congress can certainly create a gap in consumer protection by passing any one of several bills proposed by House Republicans or passing policy riders House Republicans have insisted on sticking on to the pending appropriations bill.

Similarly, if either Congress or the courts reversed the FCC’s Title II reclassification, consumers would be without any protection for either mobile broadband or DSL – both of which are offered by phone companies that have “common carrier status” based on their voice offerings. Cable broadband probably would be subject to FTC because cable service is not a common carrier service. (Needless to say, the assertions of FTC Commissioner Maureen Olhausen, former FTC Commissioner Joshua Wright, and everyone else who insisted that the Federal Trade Commission could adequate protect consumers instead of the FCC turned out to be utterly, totally and completely wrong. Thank goodness the FCC did not listen.)

Additionally, the FCC should consider prohibiting broadband providers from forcing consumers to accept mandatory arbitration clauses. When consumers tried to bring a separate class action against AT&T Mobility for throttling, AT&T invoked the mandatory arbitration clause and got the class action dismissed. The FCC may be the sole agency capable of protecting consumers from abusive practices by broadband providers, but it doesn’t have to shoulder the burden alone. It can give consumers the right to bring class actions, an important mechanism for protecting consumers from abuse and avoiding agency overload.

Does the FTC Still Have Authority Over Google Search? Can Facebook Get out of FTC Jurisdiction by Offering Online Banking Services?

This decision raises a lot of questions, and not just for broadband and internet services. Remember, the Section 5(a)(2) applies to a number of businesses, all of which confer a “status” exemption to FTC jurisdiction.

The court is extremely unclear on this point. There is some language that suggests that if the common carrier (or other exempt status) is a relatively small part of the overall business of the provider, then it would not convey the “status” of a common carrier (or other exempt entity). Unfortunately, this is just one sentence and framed in the negative. “AT&T’s status as a common carrier is not based on its acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue,” the court observed in distinguishing contrary precedent.

Taking this at face value, it would seem that simply buying a small rural wireless company would not provide a massive company like Facebook with “common carrier status.” Nor does it seem that Google Fiber, now owned by Alphabet, should provide “common carrier status” to Google Search, also owned by Alphabet. This would be a rather dramatic case of the fiber tail wagging the Google Search elephant, and it is hard to believe that even the expansive reading of Section 5(a)(2) applied here by the Ninth Circuit would extend to shielding Google Search because Google Fiber offers Title II broadband.

On the other hand, it doesn’t take long to move into more troubling and more difficult territory. Verizon Enterprise owns Verizon Wireless, probably the largest wireless common carrier. It also owns other wireline common carrier services. And it owns AOL, a content and advertising company. Does AOL share Verizon Wireless’ “common carrier status?”

These questions are impossible to resolve on the basis of this single case. So while broadband subscribers are safe (assuming Congress doesn’t do anything stupid), and while Google Search still remains subject to FTC jurisdiction, this case will have serious consequences for overall consumer protection. Even within the bounds of tech and telecom, it raises new questions as to where the border of FTC jurisdiction ends, and where FCC jurisdiction must pick up the slack.

In Conclusion:

To belabor the point one more time, this case did not involve broadband reclassification under Title II. To the contrary, this case proves that those who supported Title II as the only sure way to protect broadband access subscribers turned out to be 100% correct. Had the FCC listened to those claiming the FTC could go it alone, broadband subscribers would be utterly unprotected by any federal consumer protection law.

Nor does this case create a “gap” in consumer protection. Yes, the loss of the FTC as an additional “cop on the beat” is unfortunate. It also means the FCC must act quickly on its pending broadband privacy proceeding, and otherwise remain ready to use its broad consumer protection powers to fill in the gap.

Ultimately, however, this case creates real problems for consumer protection by creating significant concerns about the FTC’s authority in a world where large corporations often engage in multiple lines of business – some of which may have “exempt status” under Section 5(a)(2). Hopefully, the FTC will seek review by the full Ninth Circuit, which would be wise to overturn this unfortunate case.

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