On Aug. 29, a panel from the Ninth Circuit unanimously stated that the FTC does not have the power to challenge the “throttling” of unlimited data customers by mobile broadband providers as an “unfair or deceptive act.” The panel found that a key source of FTC authority (section 5 of the FTC Act) does not apply to any “common carrier” subject to regulation under the Communications Act of 1934. (FTC vs. AT&T Mobility LLCNo. 14-04785 (9th Cir. August 29, 2016)).

Critically, the panel found that the “common carrier” exception to section 5 applies under the state of the entity as a regulated common carrier, not whether the particular activities in question are regulated common carrier services. given that The FCC’s 2015 reclassification of all public broadband services (wired and mobile) as “common carrier” servicesthe decision could potentially be applied to exempt cable companies and other broadband providers (e.g., Google) from FTC Act Section 5 enforcement actions for All of their services, not just those subject to the Open Internet Order.

The decision of the district court

In FTC Mobility vs. AT&T, the FTC said AT&T violated its Section 5 prohibition on “unfair and/or deceptive” practices by allegedly limiting data for “unlimited mobile data” customers without proper consent or disclosure. AT&T moved to push back on the grounds that, because it is a regulated common communications carrier with respect to its mobile phone services, it has the “status” of a common carrier and is fully exempt from Section 5. The FTC, however, argued that the common carrier exemption applies only to common carrier businesses and, during the relevant period, AT&T’s mobile broadband service was not a common carrier business, unlike its mobile phone.

Ultimately, the question presented was whether the common carrier exemption in section 5 is based on status, such that an entity is exempt from regulation as long as it has common carrier status, or is activity based, in such that an entity with common carrier status is exempt only when the activity the FTC is attempting to regulate is common carrier activity.

THE district court agreed with the FTC and held that the section 5 exemption for “common carriers subject to the Regulating of Trade Acts” narrowly applied only to an enterprise’s “common carrier” services. Since the FTC Act does not define the “common carrier,” the lower court looked to the common law. He concluded that, when the FTC Act was passed in 1914, firms were regulated as common carriers only with respect to their common carrier services – that is, general public tenders for the carriage of passengers, goods, or, later, telephone communications.

For example, it found a 1912 Supreme Court case involving the jurisdiction of the ITC (predecessor to the FTC) over a company that provided common carrier transit services, but also owned and operated “lunch stands, amusement rides, bowling alleys, (e) bathhouses.The court noted that ITC’s common carrier jurisdiction extended only to freight services, not entertainment services, despite the fact that the same company owned and operated all services.

The district court also noted that the Communications Act – which is one of the “Regulating Commerce Acts” – defines common carriers based on the specific service in question. Indeed, a key issue leading up to the 2015 Open Internet Order was whether the FCC could and should “reclassify” Title II “common carrier” services of wired and mobile broadband.

Because there was no Ninth Circuit precedent and the courts in other jurisdictions were divided on how to interpret the “common carrier” exemption, the District Court allowed AT&T to immediately appeal the decision.

The inversion of the ninth circuit

The Ninth Circuit backed down, arguing that “AT&T is excluded from Section 5 coverage.”

Unlike the District Court, the panel found that the plain language of the exemption for “common carriers subject to laws to regulate commerce” compelled the conclusion that the exemption was based on a company’s status as a regulated common carrier, not on the particular shares in question. Conversely, the panel noted that a further exemption for “livestock packers and warehouses” is expressly limited to “…companies to the extent that they are subjects the Packers and Stockyards Act of 1921″ and, therefore, an “activity” based exemption.

The Ninth Circuit also rejected the District Court’s and FTC’s analysis of legislative history and precedent regarding the “common carrier” and “Packers and Stockyards” exemptions. The panel’s conclusion was that Congress knew how to describe an activity-based exemption (the Packers and Stockyards exemption) when it intended to enact one.

Finally, the panel found that the language and structure of Section 5 was so clear as to overcome any deference to which the FTC’s interpretation might otherwise be due. Indeed, the court noted that it was not even persuaded by a FCC-FTC Consumer Protection Memorandum of Understanding 2015which states that “the agencies express their belief that the scope of the common carrier exemption in the FTC Act does not preclude the FTC from engaging in non-common carrier activities performed by common carriers.”

Potential implications

Assuming the panel’s decision is not changed or reversed on bank or by the Supreme Court, l AT&T Mobility The decision has implications far beyond the alleged “bottleneck” of mobile broadband. Among the potential implications are:

  • Any company that supplies Anyone “Common carrier” services governed by the Communications Act may be deemed to have “common carrier” status for the purposes of Section 5 exemption. (Note however that the panel stated that “the acquisition of a minor division the firm’s core activities that generate a small fraction of its revenues” should not bring the entire firm within the common carrier exemption.)
  • The exemption would take such businesses out of section 5 per All aspects of their business, not just common carrier broadband services. This could mean, for example, that cable companies and others could be fully exempt from section 5, even for non-broadband services such as linear television, video on demand and set-top box rental.
  • A Section 5 exemption prohibits the FTC from both its consumer protection role AND its antitrust role, an area in which the FTC has recently taken a more aggressive stance.
  • Although the FCC is now regulating broadband as a common carrier, its powers are not identical to those of the FTC. For example, the FCC does not have the authority to seek refunds for customers and has a more limited “cooling off” period to challenge the conduct. In practice, even the FCC is simply newer on these issues and roles.
  • A conclusion that an entity as a whole is exempt from section 5 as a common carrier does Not it means that the entity as a whole will then be regulated as a common carrier elsewhere. For example, common carrier regulations under the Communications Act trigger the particular activity in question. Thus, a service may be exempt from section 5 because it is offered by a common carrier, but Not be subject to any common carrier regulations by the FCC.