Consolidated consumer class actions and a Federal Trade Commission suit asserting that TracFone made deceptive claims that its mobile phone contracts provided "unlimited" data will cost the company $45 million in a global settlement.
The company's ads for its Straight Talk, Net10, Simple Mobile, and TelCal plans were misleading because TracFone throttled or suspended service—or terminated it altogether—when users reached a preset data limit, the plaintiffs alleged. After four class actions were filed against the company last year, the FTC launched a separate enforcement action.
To settle all of the claims, TracFone agreed to make a $40 million payment to the FTC for distribution to an estimated 1.9 million class members. Another $5 million will be paid to class counsel. Depending on the nature of the injury—whether the class member was throttled or had their service suspended or terminated—individual recovery will range between $15 and $65.
The deal also enjoined certain of the company's future advertising and disclosure practices.
The company agreed not to advertise that its mobile service plans provided "unlimited" data unless it also clearly describes any applicable throttle limits or caps and discloses the actual speeds to which customer data will be slowed. The company's terms and conditions will be updated to describe the impact throttling can have on the functionality of services and TracFone agreed that users who contacted customer service would receive accurate information about throttling, suspension, and service termination policies. Finally, it will implement a system to advise customers by SMS text message when their data speed has been throttled upon reaching specified data caps.
After reviewing whether the settlement was fair, reasonable, and adequate, U.S. District Court Judge Edward M. Chen granted final approval.
The plaintiffs faced serious challenges to success if the case moved forward, the court noted. While TracFone's first substantive defense—that it adequately disclosed the existence of the data cap in its terms and conditions—was "not particularly strong," the court found its second argument much stronger.
According to TracFone, a substantial number of customers who were throttled did not know that their data speed had been slowed and thus suffered little—if any—cognizable injury even if they relied on TracFone's ads, while those who did notice the slowdown but nevertheless chose to sign additional monthly contracts, could no longer argue they were misled by the "unlimited" ads, as they chose to purchase the product anyway.
The plaintiffs also faced an obstacle maintaining class action status throughout the trial, Judge Chen wrote. TracFone argued that since the laws of all 50 states applied to the class members' claims, the required predominance and manageability were eliminated. The quantification of damages presented another problem for the plaintiffs, as individualized variables (the period over which a customer was throttled, the customer's desired amount of data, and the ultimate impact of the throttling on the user's functionality, for example) "present real challenges that Plaintiffs would have to overcome were this Court to deny final approval," the court said.
Judge Chen rejected an objector's concerns about the relief available to the class. "The $40 million settlement represents a good monetary result for class members," the court said, and "the injunctive relief will have significant value for both class members and the general public."
The presence of the FTC, which "participated heavily" in the settlement, also weighed in favor of final approval.
To read the order granting final approval to the settlement agreement in In re TracFone Unlimited Service Plan Litigation, click here.
Why it matters: The court's finding that final approval for the $45 million deal was appropriate relief for the class members evidences the serious challenges facing the plaintiffs in maintaining class certification and overcoming TracFone's defenses. The case and resulting settlement further demonstrate the FTC's concern about the practice of data throttling in the telecommunications industry.