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Ninth Circuit Case Could Determine How (and If) Internet Companies Are Regulated

Posted by Andrew Regitsky

Sep 22, 2017 10:00:00 AM

gavel_law_internet.jpgAs a new net neutrality decision nears, there is an extremely important ongoing case at the Ninth Circuit Court of Appeals in San Francisco that is not getting the attention it warrants. The case is AT&T v. the Federal Trade Commission (FTC) and it arose from a 2014 FTC complaint charging AT&T with failing to adequately warn unlimited-data customers that their data speeds would be reduced, or throttled, if they used too much data in a given billing cycle.

The FTC had alleged that AT&T began throttling data speeds in 2011 and, overall, throttled at least 3.5 million unlimited data customers a total of more than 25 million times. AT&T did not offer new unlimited plan contracts after June 2010, but customers who had them could keep them. AT&T and other carriers that offered unlimited plans at the time argued that at some point they must throttle customers who used excessive amounts of data as part of network management. (US Today online, August 26, 2016).

Although a district court in California sided with the FTC on its complaint, AT&T appealed the decision to the Ninth Circuit Court and won, with a panel of three judges stating that the FTC's rules do not enable it to regulate common carriers:

The common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers. Those entities are not covered by section 5 even as to non-common carrier activities. Because AT&T was a common carrier, it cannot be liable for the violations alleged by the FTC. The district court’s denial of AT&T’s motion to dismiss is reversed, and the case is remanded for entry of an order of dismissal. (FTC v. AT&T Mobility, August 29, 2016 Opinion of Ninth Circuit Court, at p. 21).

In other words, because the FCC classified broadband Internet access service (BIAS) providers as common carriers under Title II of the Telecommunications Act in its 2015 net neutrality decision, the FCC assumed regulatory authority over them.

The complaint did not end there, however, because the FTC requested the entire Court to hear the case. On Tuesday the entire Ninth Circuit conducted oral argument. This time AT&T's argument that it is a common carrier and free from FTC regulation faced some interesting rebuttals from the judges. For example, they asked whether any company could purchase a common carrier and immediately and forever be free of FTC regulation. This was not a hypothetical question since earlier this year, Congressional Republicans repealed the FCC's data security and privacy rules mandated by the Obama-era FCC and designed to fill the regulatory gap created under the new Title II BIAS classification.

[FTC lawyer Joel] Marcus said the FTC’s interest in the case is data security, and highlighted Verizon’s acquisitions of AOL and Yahoo. Letting the previous ruling stand could potentially make both web giants, boasting data on hundreds of millions of users, immune to data gathering and privacy enforcement by the FTC, since Verizon is a common carrier.

“At this point, the FTC is the only game in town in data security,” Marcus said. “But even beyond that you have the problem of the common carrier who sells dietary supplements or used cars or any of the other things the FTC ordinarily gets involved in.” (Insidesources.com, September 20, 2017).

The current FCC, which is expected to reverse the classification of BIAS before the end of the year, intervened in this case in June when it filed a "friend of the court" brief. The telecom agency contended that the FTC should have the authority to enforce privacy or data security of ISPs such as AT&T. That is because once its net neutrality decision becomes effective, it intends to wash its hands and be done with all Internet regulation and enforcement. Presumably then the FTC will assume all control over complaints made alleging blocking, throttling or prioritization of Internet traffic along with privacy and data security enforcement. It begs the question over exactly what role the FCC intends for itself in the future as the Internet and telecom continue to merge. Maybe it intends no role at all.  

One also wonders just far the FTC will go involving itself in traditional telecom issues such as the interconnection agreements between Internet service providers and edge companies that provide Internet content. On the one hand, we could have a regulatory gap with no agency oversight and enforcement. Conversely, we could have an agency (the FTC) that seeks to expand its regulatory authority into telecom issues. The FCC should take note that having a deregulatory bent should not translate into inaction.

By Andy Regitsky, CCMI

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Topics: regulatory updates, FCC, Net Neutrality, Broadband

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