In August, an appeals court threw out the Federal Trade Commission’s lawsuit against AT&T over the way it marketed its “unlimited” data plans (which were anything but unlimited). Now the FTC is taking its case up the legal ladder, making the case that if it’s not allowed to sue AT&T, then all phone and internet providers can more easily get away with deceptive business practices.
The Dawn Of Unlimited Data
The genesis for this story goes back nearly a decade, to when AT&T was the sole U.S. carrier offering the iPhone. In order to convince people to ditch their reasonably priced cellphones and voice plans and jump on the data bandwagon, AT&T offered unlimited data plans. It worked, and the iPhone (along with an army of Android-based phones) ushered in the wireless data era.
After the iPhone market opened up to Verizon and other carriers — and after some users truly got the most out of their unlimited data — AT&T not only stopped offering unlimited data plans to new customers, but began putting a de facto limit on these plans, throttling data speeds for these customers if they passed a certain, variable threshold each month.
Failure To Disclose
In 2014, the FTC sued AT&T, not over the practice of throttling, but over the way the company marketed the affected plans.
The lawsuit accused AT&T of failing to adequately disclose to customers that this throttling could occur, or that it could have a drastic impact on the experience of using your phone. Some unlimited users’ access to AT&T data was allegedly slowed by as much as 90%, making their data plans effectively useless until the next month. These shortcomings, claimed the FTC, violated Section 5 of the FTC Act, which prohibits unfair or deceptive business practices.
Can’t Sue Us
The FTC Act does have an exemption for “common carriers,” that are regulated by other federal laws and bodies. This has long included landline telephone companies, but did not include wireless data at the time of the original FTC lawsuit, or when AT&T’s throttling program began. Additionally, there is the question of whether that common carrier exception applies to every aspect of a common carrier’s business, or just those aspects of the business related to carriage.
In early 2015, AT&T attempted to have the case thrown out, arguing that even though wireless data was not (at the time) a common carrier product, this exception still applied because AT&T itself was a common carrier.
The court rejected this request in April 2015, ruling that the point of the exception in the FTC Act wasn’t to stop the FTC from regulating all commercial activities of common carriers, but from involving itself in the actual carriage of that service.
Since the FTC wasn’t suing about the fairness or legality of the throttling practice itself, and only concerned itself with AT&T’s alleged failure to clearly disclose its throttling policy to customers, the judge determined there was no regulatory overlap.
But as this was happening, the FCC successfully enacted new “net neutrality” rules. In order to make those rules stick, the Commission had to reclassify broadband and wireless data as a common carrier. Even so, said the lower court, the FTC’s lawsuit was about deceptive marketing, not telephone service.
Even though AT&T was the marquee plaintiff in the lawsuit that sought to overturn the FCC’s rules, it gladly accepted its common carrier status when it appealed the ruling in the FTC case — and this time it was more successful.
They’re Right; You Can’t Sue Them
This summer, a three-judge panel of the Ninth Circuit Court of Appeals overturned the district court’s decision and threw out the case against AT&T. The panel concluded that there is nothing in the FTC Act that specifies that the exception only applies to certain practices of exempted businesses. For example, the law generically exempts entire industries like “banks” and “federal credit unions” without any qualifications.
What the court ignores in its ruling is that there are financial regulatory bodies that can bring lawsuits seeking redress on behalf of consumers when it comes to banks and credit unions. That’s not the case for telecom if the FCC is the only agency allowed to regulate the entire industry.
Yes, the FCC can bring — and has brought — actions against phone companies for alleged bad practices, the FCC is not authorized to seek refunds for wronged consumers.
So any penalties connected in a successful FCC complaint would not go back to customers in the form of rebates or credits. Additionally, the FCC’s enforcement authority is limited to conduct going back one year.
Given that all major telecom and broadband providers now have forced arbitration clauses in their contracts — meaning you can’t sue in court and you can’t join together with other customers in a class action — the FTC is one of the few available avenues for consumers to get anything back from companies that deceive them.
The Enforcement Gap
The inability — by law — of the FCC to seek redress for consumers is key to the FTC’s recently filed petition [PDF] for a hearing before the full Ninth Circuit.
The FTC says that the appeals panel’s ruling creates an “enforcement gap that would leave no federal agency able to protect millions of consumers across the country from unfair or deceptive practices or obtain redress on their behalf.”
If you accept the panel’s reasoning in this case, argues the FTC, then any company can avoid FTC enforcement by simply offering a common carrier service as one of its many products.
For example, Comcast and other common carriers offer home security monitoring services that don’t fall under the umbrella of phone or data, but if any of those companies committed a deceptive or unfair business practice, would they be able to avoid an FTC lawsuit simply because their primary operations involve telecom/data?
What about companies where the common carrier service is only a small portion of the overall operation?
Take Google, which is a common carrier for its Fiber broadband fiberoptic service, but whose manifold other businesses — search engines, online advertising, connected home products, smartphones, streaming video and audio, among many others — do not fit into that category. Could Google deceptively market its Home speaker/hub and avoid being held accountable by the FTC?
The petition notes that it has brought multiple, successful enforcement actions against Google since 2011, but that Google “may now seek to shield all of their conduct from consumer protection enforcement,” if the Ninth Circuit ruling were to be upheld.
And then there is the issue of a common carrier company’s ability to pass this exemption on to non-carrier businesses it acquires. Are AOL and Yahoo gaining common carrier status just because they are now owned (well, maybe not Yahoo just quite yet) by Verizon?
“The panel’s ruling calls into question the FTC’s ability to protect consumers from unlawful practices by such companies in any of their lines of business,” continues the petition. “No other federal agency can fill this gap. The Federal Communications Commission can address harms related directly to telephone or internet service, but it lacks authority over other products or services, such as email and e-commerce. Other agencies have similar jurisdictional limitations. No agency has the same broad enforcement power as the FTC.”
AT&T’s Neutrality Pickle
When reached for comment, a rep for AT&T tells Consumerist that “We believe the appeals court’s ruling was correct, and that any reviews by another panel of the Court would agree.”
What’s interesting is that AT&T is in a bit of a legal pickle because its ultimate victory here may rely on its failure in its challenge to net neutrality.
The FCC’s decision to reclassify wireless data as a common carrier utility is one of the keys to AT&T’s argument. Yet at the same time AT&T is the main plaintiff in the industry’s move to overturn that reclassification.
Success in gutting net neutrality would mean that wireless data is no longer a common carrier. That’s not necessarily a killer for AT&T’s case, but the company would have to make the argument that failed to win over the district court: that just because it has some exempted phone services, that everything the company does should be exempted from the FTC Act.
As Ars Technica notes, FTC Chair Edith Ramirez has previously called on Congress to revise the common carrier exception, arguing that it’s a vestige of a time when common carriers were usually massive, un-diversified monopolies.
by Chris Morran via Consumerist