AT&T scored a key legal victory on Monday as the U.S. Court of Appeals for the Ninth Circuit ruled that the Federal Trade Commission (FTC) lacked authority to pursue claims that AT&T misled wireless subscribers by “throttling” or slowing the data transmission speeds of customers who purchased unlimited data plans. Initiated in 2014 (or a year before the FCC’s decision to reclassify broadband Internet services as common carrier telecommunications services pursuant to Title II of the 1934 Communications Act), the FTC lawsuit against AT&T contended that broadband network services provided by common carriers such as AT&T are not subject to exemptions from the FTC Act that prohibit the FTC from regulating common carriers.
The Ninth Circuit ruling overturns a previous U.S. district court pronouncement in the FTC’s favor holding that the common carrier exemption applies “only where the entity has the status of a common carrier and is actually engaging in common carrier activity.” In addition to arguing that the common carrier exemption applies exclusively to an entity’s status as a common carrier and not to its activities, AT&T also urged the court to strip the FCC’s authority to pursue charges against the company, citing the FCC’s decision to change the playing field by reclassifying broadband as a common carrier service even as AT&T contested the FTC action. (After opening its own investigation into the matter, the FCC notified AT&T in June 2015 of its potential liability for forfeiture in a case that remains pending.)
Though declining to address AT&T’s arguments “regarding overlapping regulation and the effect of the FCC’s reclassification order,” the three-judge appellate panel agreed that “the plain language of the common carrier exemption casts the exemption in terms of status, contrary to the FTC’s position.” The Ninth Circuit panel thus concluded that, because “the common carrier exemption is a status based exemption . . . AT&T, as a common carrier, is not covered by Section 5” of the FTC Act, which gives the FTC enforcement power over unfair competition and unfair or deceptive business practices. Although an AT&T spokesman told reporters that his company is “pleased with the decision,” Berin Szoka, the president of TechFreedom, characterized the decision as “another unintended consequence of the FCC’s 2015 reclassification of broadband “that “may create a significant gap in federal consumer protection law.”