In a unanimous decision, the Ninth Circuit has dismissed the Federal Trade Commission's claim that AT&T intentionally reducing the data speed of customers with unlimited mobile data plans can be challenged as an "unfair or deceptive" practice under Section 5 of the FTC Act. Based on the language and structure of the FTC Act, the Court held that the Act's common carrier exception is a status-based, rather than activity-based exemption. As AT&T is a common carrier, its mobile data practices are not covered by Section 5.
In 2007, AT&T began offering customers an "unlimited" mobile data plan for a fixed monthly rate. In 2010, it stopped offering its unlimited data plans to new customers, instead requiring that customers select a tiered data plan with a data allowance for a fixed monthly rate and with charges for usage exceeding the allowance. Existing customers who had the unlimited plans were grandfathered into the new system. However, in 2011 AT&T began reducing the speed at which unlimited plan users received data on smartphones once their usage exceeded a threshold determined by AT&T. AT&T justified this program as necessary to prevent congestion and harm to its network.
The FTC filed suit in October 2014, asserting that AT&T's imposition of data speed restrictions on customers with contracts for unlimited data plans, without contract terms stating their data speeds could be reduced, was both unfair and deceptive, in violation of FTC Act § 5.
Section 5 contains an exemption for "common carriers subject to the Acts to regulate commerce," which includes the Communications Act of 1934, to which AT&T is subject. AT&T filed a motion to dismiss the FTC's complaint, contending it is immune from Section 5 liability because it is such a common carrier. The FTC Act does not define "common carrier." The FTC took the position that the Section 5 common carrier exemption is not status-based, but activity-based; that is, because mobile data is not a common carrier service, AT&T's actions with respect to mobile data is covered by Section 5. (While the motion to dismiss was pending, the Federal Communications Commission reclassified mobile data service to a common carrier service. Although the FCC order was prospective, AT&T argued that it removed the FTC's authority to bring suit under Section 5. The court of appeals declined to address the argument.)
The district court denied AT&T's motion to dismiss, concluding that the common carrier exemption applied "only where the entity has the status of common carrier and is actually engaging in common carrier activity." The district court relied on a number of Supreme Court cases, from before the FTC Act was enacted, that distinguished between entities engaging in common carrier and non-common carrier activities, as well as (non-binding) FTC agency opinions.
The Ninth Circuit reversed the district court. Analyzing the language and structure of the statute, the appeals court noted that the common carrier exemption is surrounded by other, similarly-worded, status-based exemptions for "banks," "savings and loan institutions," "air carriers," and "persons and corporations subject to the Packers and Stockyard Act." This indicates the common carrier exemption also is status-based. The court acknowledged some deference is due to the FTC's recent agency decisions that have interpreted the exemption as activity-based; nevertheless, this was insufficient to overcome the statutory interpretation that favors a status-based exemption.
The FTC has been increasingly aggressive in bringing actions under the FTC Act. This case demonstrates that there are some boundaries on the FTC Act's jurisdiction under the FTC Act § 5. The common carrier exemption in Section 5 carves out a group of entities based on their status as common carriers, including telecommunications companies, airlines, banks, and certain other regulated entities. Those entities are not covered by Section 5 even as to their non-common carrier activities.
The Ninth Circuit's decision of August 29, 2016, can be found here.