TR Daily In En Banc Ruling, Ninth Circuit Affirms FTC Authority over ISPs
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Monday, February 26, 2018

In En Banc Ruling, Ninth Circuit Affirms FTC Authority over ISPs

In an en banc decision, the U.S. Court of Appeals for the Ninth Circuit (San Francisco) today ruled that AT&T Mobility is entitled to have a Federal Trade Commission unfair business practices lawsuit against it dismissed under the FTC Act’s common carrier exemption.

In doing so, the full court overturned a decision by a three-judge panel of the same court that, in 2016, had overturned a decision by the U.S. District Court for the Northern District of California rejecting AT&T’s motion for dismissal of the FTC’s lawsuit. AT&T had argued that it was entitled to the FTC Act’s exemption for common carriers that are “subject to the Acts to regulate commerce,” such as the Communications Act (TR Daily, Aug. 29, 2016).

In briefs and arguments before the Ninth Circuit, the FTC had urged an “activity-based” interpretation of that provision of the FTC Act, meaning that the exemption would only apply to entities when they are providing common carrier services, not when they are providing other services that are not classified as common carrier services. AT&T, on the other hand, had argued for a “status-based” interpretation, meaning that a common carrier would be entitled to the exemption even when engaged in providing services that are not classified as common carrier services.

In today’s decision in “FTC v. AT&T Mobility LLC” (case 15-16585), Circuit Judge M. Margaret McKeown writing for the unanimous en banc court said, “Looking to the FTC Act’s text, the meaning of ‘common carrier’ according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission (‘FCC’), and legislative history, we conclude that the exemption is activity-based. The phrase ‘common carriers subject to the Acts to regulate commerce’ thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services.”

Today’s decision sends the case back to the district court for further proceedings, but the implications of the decision for FTC enforcement authority over broadband Internet access service providers have a much greater range. Supporters of the FCC’s recent decision to reverse its 2015 classification of broadband Internet access service as a common carrier service have argued that it is better to rely on the FTC to protect consumers from unfair business practices by Internet service providers (ISPs). Meanwhile, opponents of that decision have argued that if the 2016 decision of the Ninth Circuit three-judge panel stood, neither the FCC nor the FTC would be able to adequately police the actions of broadband Internet access service providers.

The Ninth Circuit noted in a footnote in today’s decision that the FCC reversed its 2015 common carrier classification of broadband Internet access service “‘only on a prospective basis.’ … The parties spar over whether this order moots the appeal. AT&T renews its argument that the FTC lost jurisdiction to press this suit after the FCC’s 2015 Order and so all litigation must cease. We conclude the appeal is not moot. The FTC derived its jurisdiction from the FTC Act, and neither of the FCC’s Reclassification Orders applies retroactively.”

The case stems from the FTC’s allegations that AT&T’s “throttling” of wireless broadband customers with “unlimited” data plans constituted an unfair business practice under section 5 of the FTC Act, and that its marketing of data plans as unlimited when they are subject to throttling was a deceptive business practice (TRDaily, Oct. 28, 2014). Judge McKeown said that the court’s statutory interpretation of the common carrier exemption “accords with common sense. The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications. New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company. The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement.”

Looking at past judicial interpretation of the concept of a common carrier, Judge McKeown wrote, “Critical to our interpretation, a consistent line of cases demonstrates that ‘common carrier’ had a well-understood meaning by 1914. Forty years before the FTC Act, the Supreme Court observed that an entity could be considered a common carrier for some purposes but not others: ‘A common carrier may, undoubtedly, become a private carrier, or a bailee for hire, when, as a matter of accommodation or special engagement, he undertakes to carry something which it is not his business to carry.’ N. Y. Cent. R.R. Co. v. Lockwood, 84 U.S. 357, 377 (1873). In other words, being a common carrier entity was not a unitary status for regulatory purposes. A business with common-carrier status acted in its capacity as a common carrier only when it performed activities that were ‘embraced within the scope of its chartered powers.’ Id.”

After discussing other decisions by the Supreme Court, other circuits, and its own circuit that align with an activities-based interpretation, Judge McKeown said, “In contrast to this long line of cases, AT&T’s position that the case law supports a status-based interpretation of ‘common carrier’ does not withstand scrutiny. AT&T highlights a passage in Goodrich that the ICC, in order to regulate a common carrier, ‘might require a knowledge of the business of the carrier.’ 224 U.S. at 211. But there is nothing profound about that statement. It is common sense that a regulator would need to understand the scope of a business in order to determine how and whether to regulate it. Significantly, the Court pointed out that the ICC has a legitimate interest in the overall business of a carrier so that the Commission can ‘regulat[e] that which is confessedly within its power.’ Id. at 214.

“AT&T’s reliance on FTC v. Miller is similarly misplaced. 549 F.2d 452 (7th Cir. 1977). There, the Seventh Circuit stated that it ‘need not decide whether the FTC is correct in its statement that the non-carrier activities of a common carrier do not fall within the scope of the [section] 6 exemption [to the FTC’s jurisdiction].’ Id. at 458,” she added.

She also noted that the FCC and FTC had both urged the court to adopt the activities-based interpretation as consistent with the agencies’ own historical interpretation of the common carrier exemption.

“Such concurrent jurisdiction makes sense, as different federal agencies bring to the table discrete forms of expertise and specific enforcement powers. The numerous examples of the FTC participating in multiagency proceedings against the same conduct belie AT&T’s argument that telecommunications providers must be regulated by the FCC alone,” she wrote.

“Finally, we address whether the FCC’s [2015] order reclassifying mobile data service from a non-common-carriage service to a common-carriage service changes the outcome of this appeal,” she wrote.

“The Reclassification Order’s explicit text and the ‘generally applicable presumption against retroactivity’ confirm that the FTC’s Section 5 authority to bring cases concerning mobile data services has been curtailed only for services rendered after the order became effective,” she said.

Acting FTC Chairman Maureen K. Ohlhausen said, “I welcome the Ninth Circuit’s ruling as good news for consumers. It 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 market behavior.”

An AT&T spokesperson said, “Today’s decision on jurisdiction does not address the merits of the case. We are reviewing the opinion and continue to believe we ultimately will prevail.”

House Energy and Commerce Committee ranking member Frank Pallone Jr. (D., N.J.) said, “Today’s 9th Circuit ruling is a win for consumers. The FTC can and should take actions to protect consumers from unfair and deceptive acts by companies when they’re not acting as common carriers. But this decision does not fix the hole created by Republicans who stopped the FCC from enforcing strong privacy and data security safeguards. Consumers still lack adequate protections without clear rules of the road.”

FCC Chairman Ajit Pai said, “The Ninth Circuit’s decision is a significant win for American consumers. Among other things, it reaffirms that the Federal Trade Commission will once again be able to police Internet service providers after the Restoring Internet Freedom Order takes effect. In the months and years ahead, we look forward to working closely with the FTC to ensure the protection of a free and open Internet.”

In releasing the Chairman’s statement, the FCC noted that in December 2017, it had announced with the FTC the agencies’ intentions to enter into a Memorandum of Understanding for coordinating their online consumer protection efforts.

Public Knowledge Senior Vice President Harold Feld said in a statement, “As the Ninth Circuit recognized, ‘two cops on the beat is nothing unusual.’ The FCC’s 2015 classification of broadband as a Title II telecommunications service did not take away the Federal Trade Commission’s role in protecting consumers. Strong net neutrality protections enforced by the FCC were completely consistent with the FTC playing its traditional role in protecting consumers.

“Some have tried to portray today’s decision as somehow lessening the disastrous effects of the FCC’s recent net neutrality repeal. This is entirely backward. This case illustrates the problem of having the Federal Trade Commission try to do alone what it should do in partnership with the FCC,” Mr. Feld added.

“AT&T began deceptively throttling ‘unlimited’ customers in 2011. The FTC brought this action in 2014. Now, in 2018, the FTC gets to go back to the district court to argue the case on the merits. Today’s decision does not suddenly give the FTC new authority to replace the FCC on net neutrality. The need to reverse the FCC’s net neutrality repeal remains as urgent as ever,” Mr. Feld concluded.

Consumers Union, the advocacy division of “Consumer Reports,” applauded the decision, but it also said that the ruling “was not a substitute for restoring the net neutrality rules repealed by the FCC earlier this year.”

Jessica Rich, vice president–advocacy for “Consumer Reports” and former director of the FTC’s Bureau of Consumer Protection, said, “This is the right result for the FTC and consumers, allowing the FTC to continue to protect consumers in what would otherwise be a vast regulatory gap. However, this decision only restores the limited jurisdiction the FTC previously had over internet service providers. Despite what the telecom industry says, this ruling is no substitute for the critical net neutrality protections that the FCC has rolled back under Chairman Pai, which is why we’re urging Congress to restore the rules to protect the open internet.”

Tech Freedom President Berin Szóka said, “The decision removes any doubt: the FTC can and will police net neutrality, broadband privacy and any other broadband consumer protection or competition concern that might arise. This decision should surprise no one, since the court had already vacated the panel decision — but that didn’t stop Title II zealots from insisting that the sky would fall if the FCC didn’t maintain common carriage authority over broadband. That argument has always been a pretext for those who simply want to regulate the Internet as railroads were regulated in the 19th century, and Ma Bell was last century.” —Lynn Stanton, [email protected]

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