Court Throws Out FTC Throttling Case Against AT&T

Says common carrier exemption is activity based

The FTC's action against AT&T for throttling the speeds of unlimited data customers has been thrown out by a federal appeals court.

The U.S. court of Appeals for the Ninth Circuit has ruled that the regulatory exemption that prevents the Federal Trade Commission (FTC) from regulating common carriers is "status"-based and is not confined only to common carrier "activity" by an entity that has the status of a common carrier.

That means the FTC could not pursue the company for allegedly failing adequately to inform its customers that their unlimited plans would be throttled once their data usage reached a certain threshold.

"We're pleased with the decision," AT&T said in a statement.

The FTC had claimed that the exemption was activity-based, so that it only applied to common carrier activities undertaken by common carriers. That left the FTC free, or so it thought, to regulate the mobile broadband of AT&T, which at the time of the action was classified as a non-common carrier service.

The district court, in refusing AT&T's request that the FTC case against it be dismissed, had concluded that the exemption applied “only where the entity has the status of common carrier and is actually engaging in common carrier activity."

AT&T had also argued that since the FCC reclassified mobile broadband as a common carrier service via its new Open Internet rules while it was in the midst fighting the FTC action, that should strip the FCC of authority to pursue AT&T.

After getting that regulatory authority over mobile broadband, the FCC in June 2015 issued a Notice of Apparent Liability against AT&T over the throttling program over the same issue.

The court did not resolve the overlapping jurisdiction issue or the impact of the Open Internet order, saying it did not need to since it was ruling based on its conclusion about status, rather than conduct.

The common carrier exemption in section five of the FTC Act carves out a group of entities based on their status as common carriers. Those entities are not covered by section five even as to non-common carrier activities. Because AT&T was a common carrier, it cannot be liable for the violations alleged by the FCT. The district court's denial of AT&T's motion to dismiss is reversed."

“Today’s decision may create a significant gap in federal consumer protection law,” said Berin Szoka, president of TechFreedom, in response to the decision. “This is just another unintended consequence of the FCC’s 2015 reclassification of broadband....[T]he FCC assured everyone that it would work with the FTC to coordinate the two agencies’ approaches, assuming that the FTC would continue to be able to police the non-common carrier activities of broadband providers. Today’s decision proves the FCC wrong. Reclassifying broadband means the FTC can’t police any practices of common carriers, at least in the Ninth Circuit," he said.