Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—N.D. Cal.: AT&T Mobility unable to avoid FTC “throttling” suit, (Apr 1, 2015)

By Linda O’Brien, J.D., LL.M.

The mobile data services of cellular communications provider AT&T Mobility were not regulated as common carrier activity by the Federal Communications Commission and therefore were not exempt from FTC enforcement authority under the FTC Act as a common carrier, the federal district court in San Francisco has ruled. Accordingly, AT&T’s motion to dismiss was denied (FTC v. AT&T Mobility LLC, March 31, 2015, Chen, E.).

In October 2014, the FTC filed a complaint against AT&T, alleging that the company failed to adequately disclose to customers on unlimited data plants that, if they reached a certain amount of data use in a given billing cycle, AT&T would reduce or “throttle” their data speeds, in some cases up to 90 percent. The suit charged that AT&T violated the FTC Act by changing the terms of customers’ unlimited data plans while those customers were still under contract and by failing to adequately disclose the nature of the throttling program to consumers who renewed their unlimited data plans.

In January 2015, AT&T moved to dismiss the complaint, contending that the company was a common carrier under the Communications Act regulated by the Federal Communications Commission (FCC) and therefore exempt from the FTC’s enforcement authority under the FTC Act.

Common carrier exception. The court determined that the common carrier exception applied only where an entity had the status of common carrier and was actually engaging in common carrier activity. Section 45 of the FTC Act provides an exception for common carriers subject to the statutes regulating commerce, including the Communications Act. Although the term “common carrier” was not defined in the FTC Act, the term should be construed according to the “ordinary sense of the word,” the court noted.

AT&T argued that, in interpreting “common carrier” under Section 45, the term should be broken into two separate inquiries: (1) is an entity a common carrier for any purpose? and (2) if so, is the entity subject to the statutes to regulate commerce? In rejecting this argument, the court noted that a holistic interpretation of the common carrier exception was more consistent with the legislative history of the FTC Act. The legislative history indicated that the purpose of the exception was to prevent overlap between common carrier regulations rather than preventing all regulatory overlap. AT&T’s interpretation of the common carrier exception would result in significant regulatory gaps, in the court’s view.

The FCC’s regulation of mobile data services under the Communications Act as non-common carrier activity was not dispositive. The court found persuasive the reasoning in FTC v. Verity International, 194 F. Supp. 2d 270 (2002), which stated that the common carrier exception required consideration of both status and activity, and not just status alone. Additionally, the court noted that the FTC Act was a remedial statute that should be read broadly and its exemptions read narrowly, and that the FTC’s interpretation of the term “common carrier” merited some deference.

Reclassification order. On March 12, the FCC decided to reclassify mobile data service from non-common carriage service to a common carriage service and provided that the reclassification will be applied only on a prospective basis. AT&T’s argument that, once the reclassification order goes into effect, the FTC will no longer have jurisdiction to pursue the case was rejected. The court found that, even if the change was jurisdictional and resulted in the delegation of enforcement of mobile data services to the FCC, the substantive rights of injured consumers were impacted by the change as well. The FTC took a substantive position in reliance on existing law when it filed its complaint, and the agency, as well as the public, was prejudiced when that law was changed by a sister agency and not by a direct act of Congress. Therefore, the FCC reclassification order, when it becomes effective, would not deprive the FTC of any jurisdiction over past alleged misconduct asserted in this pending action, the court concluded.

The case is No. 3:14-cv-04785-EMC.

Attorneys: David Michael Newman for Federal Trade Commission. Benjamin Stark Softness (Kellogg, Huber, Hansen, Todd, Evans and Figel, PLLC) for AT&T Mobility LLC.

Companies: AT&T Mobility LLC

Cases: Advertising ConsumerProtection CaliforniaNews FederalTradeCommissionNews