FTC, AT&T Square Off in Data Throttling Case; Attorneys Disagree On Regulatory Oversight

SAN FRANCISCO -- An attorney for AT&T Mobility said the FCC -- not the FTC -- is the telco's main regulator and AT&T would be "happy" to defend against allegations that it throttled its data service without telling customers. Michael Kellogg, representing the telco before 11 judges of the 9th U.S. Circuit Court of Appeals during oral argument Tuesday, said he wasn't arguing against the idea of concurrent enforcement. But in this instance, Congress drew a distinction that the FCC is the primary regulator and the case is "right in its wheelhouse," he continued.

Attorneys for the FTC and AT&T squared off in the en banc hearing. Last year, a three-judge 9th Circuit panel sided with AT&T, reversing a lower court ruling that denied the telco's motion to dismiss a 2014 data throttling lawsuit brought under Section 5 of the FTC Act. The panel said the FTC didn't have the authority to regulate AT&T since it's a common carrier exempted altogether from FTC oversight, which is what Kellogg argued. He said that the FCC can regulate the telco. Kellogg said that even if a common carrier had a non-common carrier activity offered by a separate subsidiary, it too can be subject to oversight. He said the FTC and the FCC's argument the exemption would leave a regulatory gap is untrue. "There is simply no gap to be found," he said.

The 9th Circuit judges pressed both sides hard. They asked the government attorney about a proviso of the FTC Act that seemed to establish that common carriers were status based. Joel Marcus countered that that is used when the agency conducts investigations. Judges asked Kellogg about whether common carriers with a status-based exemption would be exempt from all oversight, including by the FCC. Kellogg said the FCC does have power to oversee common carriers under Title II of the Communications Act.

Marcus said if the 9th Circuit finds in favor of AT&T's status-based argument, it would harm consumers because it would apply to all common carriers, not just to this case. AT&T says there should be only one cop on the beat, but Marcus said other courts have ruled there can be agencies with overlapping jurisdiction. He pushed back on Kellogg's assertion that the FTC never pressed a case against a common carrier. Marcus pointed to enforcement actions against petroleum companies, saying the commission has been "pretty consistent for quite a long time." He added that the FTC Act with respect to enforcement of common carriers should be interpreted broadly and the exceptions narrowly.

In 2014, the FTC sued AT&T in the District Court for the Northern District of California, alleging the telco promised an unlimited data plan for 5 million smartphone customers without telling them that it would have to slow or throttle service for those who exceeded a monthly data usage threshold. AT&T argued that since Section 5 exempts common carriers from FTC oversight, all its services would be exempt -- even non-common carrier activities. The trade commission contended it can regulate AT&T and other telcos when they engage in non-common carrier activities such as their mobile data services. In 2015, District Judge Edward Chen agreed with the FTC, saying AT&T is a common carrier only when it's engaging common carrier services.

Just over a year ago, a three-judge 9th Circuit panel sided with AT&T, reversing Chen's decision. The panel said the FTC doesn't have jurisdiction over AT&T and other ISPs based on their "status" as common carriers even if their activities aren't related to common carriage (see 1608290032). The panel said Chen cited several cases that "recognize a distinction between common carrier and non-common carrier activities in the regulation of entities with common carrier status." But the 9th Circuit panel added that the cases "do not show that when Congress used the term 'common carrier' in the FTC Act, it could only have meant 'common carrier to the extent engaged in common carrier activity.'" There isn't any indication that the "regulatory distinction" in the cases Chen cited is "implicit in Congress's phrasing of the common carrier exemption," said the panel's Aug. 29, 2016 decision (in Pacer).

The FTC appealed and was granted an en banc review in May, which isn't typical (see 1609270033, 1611020031 and 1705090068). The commission has argued that companies like Comcast, Google and even ExxonMobil, which operates common carrier pipelines, could skirt oversight by claiming to have common carrier status by offering new services or through acquisitions. It said no other federal agency has broad enforcement power, not even the FCC, which can only address problems related to telephone or internet service but not over email and e-commerce. The FCC filed an amicus brief in May supporting the FTC's position. If the full 9th Circuit court decides to take AT&T's position, the FCC said it could "potentially immunize" the telco from both FTC and FCC oversight creating "a potentially substantial regulatory gap" that could weaken or nix consumer protection. "While AT&T may prefer to offer services in a regulatory no man's land, the law does not dance to AT&T's whims," said the FCC in its filing.