The Republican-led FCC’s effort to get out of the business of regulating broadband providers’ consumer practices took a step forward on Monday.  In an appeal that has been proceeding in parallel with the FCC’s “Restoring Internet Freedom” reclassification proceeding, the U.S. Court of Appeals for the Ninth Circuit issued an opinion giving the Federal Trade Commission (FTC) broad authority over practices not classified by the FCC as telecommunications services.  Specifically, the Ninth Circuit, sitting en banc, issued its long-awaited opinion in Federal Trade Commission v. AT&T Mobility, holding that the “common carrier exemption” in Section 5 of the FTC Act is “activity based,” exempting only common carrier activities of common carriers (i.e., the offering of telecommunications services), and not all activities of companies that provide common carrier services (i.e., rejecting a “status-based” exemption).  The case will now be remanded to the district court that originally heard the case.  Coupled with the FCC’s reclassification of Broadband Internet Access Services (BIAS) in the net neutrality/restoring internet freedom proceeding, the opinion repositions the FTC as top cop on the Open Internet and broadband privacy beats.

Background

As we discussed in several earlier blog posts, this case stems from a complaint that the FTC filed against AT&T Mobility in the Northern District of California in October 2014 alleging that AT&T deceived customers by throttling their unlimited data plans without adequate disclosures.  AT&T moved to dismiss the case on the grounds that it was exempt under Section 5, based on its status as a common carrier, but the district court denied the motion, finding that the common carrier exemption was activity-based, and AT&T was not acting as a common carrier when it offered mobile broadband service, which, at the time the FCC classified as a non-common-carrier “information service.”  AT&T appealed and a three-judge panel of the Ninth Circuit reversed the district court, holding that the common carrier exemption was “status-based,” and the FTC lacked jurisdiction to bring the claim.  As we noted then, the three-judge panel’s decision was the first recent case to address the “status-based” interpretation of the common carrier exemption, and the decision – if it stood – could re-shape the jurisdictional boundaries between the FCC’s and the FTC’s regulation of entities in the communications industry.

The En Banc Court’s Analysis

The FTC appealed the case to an en banc panel of the Ninth Circuit, which issued its opinion this week.  The court’s decision relied on the text and history of the statute, case law, and significant deference to the interpretations of the FTC and FCC, which both view the common carrier exemption as activity-based rather than status-based.

The Court first analyzed the history of Section 5 and the common carrier exemption.  It found that the Congress intended the exemption to be activity based and rejected textual arguments advanced by AT&T that other statutory provisions—including Section 6 of the FTC Act and the Packers and Stockyard Exception—demonstrated that the common carrier exemption was status based.  The Court gave significant weight to the understanding of common carriers in 1914, when the FTC Act was first passed, and legislative statements made during consideration of that Act.

The Court then addressed case law that an entity can be a common carrier for some activities but not for others.  The Court found this case law to support an activity-based interpretation of the common carrier exemption.  Specifically, the Court found that while Congress has not defined the term “common carrier,” Supreme Court case law leading up to and following the passage of the FTC Act interpreted the term “common carrier” as an activity-based classification, and not as a “unitary status for regulatory purposes.”  The Court found that its approach was consistent with the Ninth Circuit’s longstanding interpretation of the term “common carrier” as activity-based, as well as the interpretations of the Second, Eleventh, and D.C. Circuits.  (AT&T did not contest these cases, but instead argued that the FCC had many legal tools to address non-common carrier activities, including Title I ancillary authority and potential structural separation.)

Notably, the Court also provided significant deference to the views of the FTC and FCC, both of which have recently expressed the view that the FTC could regulate non-common carrier activities of common carriers.  The Court cited the FCC’s amicus brief before the en banc panel and a 2015 Memorandum of Understanding between the two agencies that interpreted the common carrier exemption as activity-based.

Finally, the Court rejected arguments that the FCC’s 2015 Open Internet Order reclassifying mobile broadband as a common carrier service (or the FCC’s 2017 Restoring Internet Freedom Order reversing that classification) retroactively impacted the outcome of the appeal.

Agency Response

After the court issued its opinion, both FTC Acting Chairman Maureen Ohlhausen and FCC Chairman Ajit Pai applauded the ruling.  Chairman Ohlhausen stated that the ruling “ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests including privacy protection, as well as stopping anticompetitive market behavior,” while Chairman Pai stated that the ruling is “a significant win for American consumers” that “reaffirms that the [FTC] will once again be able to police Internet service providers” after the Restoring Internet Freedom Order goes into effect.

Our Take

The Ninth Circuit’s ruling is unsurprising in some senses.  When a court grants en banc review, it often is for the purpose of reversing or at least narrowing the panel’s initial decision.  AT&T also faced fairly strong questioning during the oral argument in September.  Further, the Court’s decision affirms a position that the FTC had taken for many years and that the FCC – as evidenced by the 2015 Memorandum of Understanding – supported.  Thus, the en banc court here effectively affirms current practice.

All of that said, the issue is not settled.  AT&T’s reaction was decidedly muted, and it may still seek Supreme Court review of the question.  This option may be particularly attractive to AT&T because it noted several times during the oral argument that it faced both FTC and FCC enforcement actions against it for allegedly the same activities.  The Ninth Circuit did not mention the FCC enforcement action or the potentially conflicting interpretations of AT&T’s obligations.  It is not clear whether both actions could or would proceed as a result of the decision.

Going forward, once the FCC’s Restoring Internet Freedom Order takes effect, we can expect that the FTC will serve as the top cop for alleged broadband consumer protection violations, including with respect to open Internet- and privacy-related complaints.  And yet, there is still some uncertainty.  The FCC’s Restoring Internet Freedom Order is under appeal.  If the appeals court that ultimately hears the challenges to the Restoring Internet Freedom Order were to reverse the Order, the possibility exists that broadband services would again come under FCC common carrier jurisdiction, thereby exempting the provision of such services from FTC jurisdiction even under an activity-based interpretation of the FTC Act.  Thus, we may not have finality on broadband regulation, despite the Court’s decision this week.

More broadly, we expect that the FTC will continue to push for eliminating the common carrier exemption altogether before the Congress, as it has for many years.  Congressional action to repeal the exemption appears unlikely in the near term.

At least for now, broadband providers should continue to ensure that their privacy and broadband practices are in line with FTC guidelines and judicial interpretations of Section 5, and should comply with remaining FCC Open Internet requirements, such as the transparency rule.

On December 11, 2017, the Federal Communications Commission (FCC) and Federal Trade Commission (FTC) released a draft Memorandum of Understanding (MOU) which will allocate oversight and enforcement authority related to broadband Internet access service (BIAS) between the two agencies.  The new MOU was announced three days before the FCC’s scheduled vote to reclassify BIAS as an “information service,” and is expected to be finalized simultaneously with that vote.  The MOU is part of an ongoing effort to address concerns that reversing the current “net neutrality” rules will adversely affect consumers, and provides a guide for Internet service providers (ISPs) and other stakeholders to understand which agency will be taking the lead on oversight and enforcement going forward.  However, the extent to which the MOU takes effect will depend upon, among other things, the pending case interpreting section 5 of the FTC Act that is before the Ninth Circuit Court of Appeals.

Continue Reading On the Eve of the FCC’s Reclassification of Broadband Services, the FCC and FTC Release Memorandum of Understanding for Oversight of Broadband

In support of its request for an en banc rehearing of a Ninth Circuit Court of Appeals panel decision in FTC v. AT&T over the jurisdictional boundaries between the Federal Trade Commission’s (FTC) and Federal Communications Commission’s (FCC) authority over phone companies, broadband providers, and other common carriers, the FTC sent a letter to the Court yesterday highlighting the Congressional joint resolution signed into law by President Trump that eliminates the broadband and voice privacy rules in a November 2016 FCC order.

The FTC argues in its letter to the Ninth Circuit that because “the FCC privacy rules never became effective and are now null and void, they cannot mitigate the regulatory gap discussed by the FTC in its petition.”  The FTC suggests that the regulatory gap is unlikely to be filled by the FCC in the future because the Congressional Review Act prevents “reissu[ing] the privacy rules in ‘substantially the same form’ or issu[ing] new rules that are ‘substantially the same’ as the disapproved rule unless such action is authorized by a newly enacted law. 5 U.S.C. § 801(b)(2).”

Whether this argument is likely to help persuade the Ninth Circuit to grant the FTC’s request for an en banc rehearing is unclear.  This filing also follows an op-ed earlier this week by the FTC’s acting Chairman, Maureen Ohlhausen and FCC Chairman Ajit Pai, stating that the FCC’s prior party-line vote to strip the Federal Trade Commission of its jurisdiction over Internet broadband providers was a mistake,” and that the two agencies would work together to “restore the FTC’s authority to police ISP’s privacy practices.”  We will keep you posted on updates.

iStock_000019536561Large-300x225At the Federal Communications Commission’s (“FCC”) Open Meeting on October 27, the Commission voted along party lines (3-2) to impose more stringent rules on broadband Internet service providers (“ISPs”). Chairman Tom Wheeler, along with Commissioners Rosenworcel and Clyburn voted in favor of the item, while Commissioners Pai and O’Rielly voted against it.

The new rules clarify the privacy requirements applicable to broadband ISPs pursuant to Section 222 of the Communications Act. The new rules also apply to voice services and treat call-detail records as “sensitive” in the context of voice services.

According to an FCC press release issued immediately after the meeting, these rules “establish a framework of customer consent required for ISPs to use and share their customers’ personal information that is calibrated to the sensitivity of the information.” The Commission further asserts that this approach is consistent with the existing privacy framework of the Federal Trade Commission (“FTC”). Continue Reading FCC Votes to Impose Aggressive New Privacy Rules on Broadband Providers

Showing that it’s not about to slow down its aggressive enforcement of its open Internet regulations, the Federal Communications Commission (FCC) announced a settlement yesterday resolving claims that T-Mobile USA Inc. (T-Mobile) failed to adequately disclose material restrictions on T-Mobile and MetroPCS data plans that were advertised as “unlimited” from August 2014 to June 2015.  Specifically, the FCC’s investigation found that T‑Mobile failed to adequately disclose that it would significantly slow the speed of its customers’ “unlimited” data after they reached preset, undisclosed thresholds for data usage.

The FCC’s settlement requires T-Mobile to pay a total of $48 million. It further requires T-Mobile to clearly and conspicuously disclose any material limitations on the amount and speed of mobile data for its “unlimited” plans, and includes reporting and training obligations. Continue Reading FCC Flexes Muscle: T-Mobile to Pay $48 Million for Failing to Disclose Limits on ‘Unlimited’ Data

On Monday, August 29, 2016, the Ninth Circuit Court of Appeals issued an opinion that may dramatically alter the boundaries between the Federal Trade Commission’s (FTC) and Federal Communications Commission’s (FCC) authority over phone companies, broadband providers, and other common carriers.  The Ninth Circuit dismissed a case that the FTC brought against AT&T over its practices in connection with wireless data services provided to AT&T’s customers with unlimited data plans.  The FTC had filed a complaint against AT&T for “throttling” the data usage of customers grandfathered into unlimited data plans.  Once customers had used a certain level of data, AT&T would dramatically reduce their data speed, regardless of network congestion.  The FTC asserted that AT&T’s imposition of the data speed restrictions was an “unfair act or practice,” and that AT&T’s failure to adequately disclose the policy was a “deceptive act or practice.”

The Ninth Circuit’s decision is the latest in a series of actions attempting to identify the jurisdiction over Internet access services and Internet-based services.  As providers and regulators have struggled to identify the proper regulations applicable to such services, the Ninth Circuit’s decision could force significant shifts by both the FTC and FCC for at least a large segment of the industry.

Background

At issue before the Ninth Circuit was the scope of the FTC Act’s exemption of “common carriers” from the FTC’s authority.  The FTC argued, and the trial court held, that the common carrier exemption only applied to the extent that the service in question is a common carrier service (i.e., an “activity-based” test that precluded FTC jurisdiction only where a common carrier is engaging in common carrier activities).  Because the service that the FTC challenged (wireless broadband Internet access service (“BIAS”)) was not a common carrier service at the time that the FTC brought its action against AT&T, the trial court held AT&T was not engaging in common carrier activity and therefore the FTC had authority to bring its lawsuit.

AT&T appealed the decision, arguing that the FTC Act’s exemption of common carriers should be based on their status, and thus telecommunications service providers like itself are exempt from the FTC’s authority regardless of whether the activity at issue is a common carrier service.

The Ninth Circuit noted two things related to the dispute.  First, the court noted that “it is undisputed that AT&T is and was a ‘common carrier[] subject to the Acts to regulate commerce’ for a substantial part of its activity.”  Further, the court noted that, during the time period in question, AT&T’s mobile data service “was not identified and regulated by the FCC as a common carrier service” although, since the FCC’s 2015 Open Internet Order, the FCC has classified the service as a common carrier service.

The Ninth Circuit sided with AT&T, and remanded the case for an entry of an order for dismissal. The court held that under the plain language of the statute, the exemption is based on a company’s status and applies regardless of the activity at issue.  The “literal reading of the words Congress selected,” the court wrote, “simply does not comport with an activity-based approach [to the common carrier exemption].”  The court compared the common carrier exemption to the other exemptions in the statute (for banks, savings and loan institutions, federal credit unions, air carriers and foreign air carriers) that are admitted by the FTC to be status-based, and to the exemption for meatpackers “insofar as they are subject to the Packers and Stockyards Act,” which the court found to be activity-based.  The court held that amendments enacted in 1958 to Section 5 – which added the “insofar as” language – indicated an activity-based exemption for that provision but affirmed status-based exemptions for the remainder “then and now.”

Notably, the Ninth Circuit chose to address the status question, rather than addressing a more narrow issue of whether the FCC’s 2015 reclassification of BIAS as a telecommunications service applied to AT&T’s service retroactively.

Implications

The FTC issued a statement that it is “disappointed” and “considering [its] options,” but it is unclear whether it will appeal the ruling to the Supreme Court.   It is worth noting that, although the Ninth Circuit did not discuss the decisions, this is the third time that a court of appeals has faced status-based arguments relating to the common carrier exemption.  The Seventh Circuit’s 1977 decision in U.S. v. Miller, and the Second Circuit’s 2006 decision in FTC v. Verity Int’l, Ltd., both involved entities claiming common carrier status, although neither decision brought finality to the question.  If the FTC pursues the issue further, industry and practitioners could receive welcome guidance on the issue.

More broadly, the FTC has openly called for the end of the common carrier exemption in the past few years.  This decision may add fuel to the agency’s efforts in that regard.

As is, the decision makes it more difficult for the FTC to bring an action against a company that can claim to be a common carrier.  The Ninth Circuit’s decision noted that AT&T unquestionably was a common carrier “for a substantial part of its activity” and at one point distinguished a case, noting that AT&T’s status “is not based on its acquisition of some minor division unrelated to the company’s core activities.”  Nevertheless, the court’s analysis leaves open the possibility that even providing only a small amount of common carrier service may be enough to qualify all of a company’s activities for the common carrier exemption.

On the FCC side, there are equally broad questions raised by the decision.  The FCC recently has broadly construed its own authority under Section 201(b), to a fair degree of controversy, to address practices of common carriers “for or in connection with” their services, such as advertising and billing.  Presumably, these efforts will continue after the Ninth Circuit’s ruling.  The Ninth Circuit’s ruling, however, may encourage the FCC to fill any potential gap in coverage by taking a broader view of its own authority to regulate non-common carrier services that common carriers offer to consumers.  This could have significant implications for a number of ongoing FCC proceedings, including a proceeding to overhaul the FCC’s privacy rules after the Open Internet Order and requests to classify SMS messaging and interconnected voice-over-Internet-Protocol (VoIP) service as telecommunications services subject to common carrier regulation.  This also might color the FCC’s approach to regulation of over-the-top services provided by non-carrier entities using telecommunications or Internet services.

Time will tell how this plays out, but for now, the Ninth Circuit appears to have significantly reset the boundaries between the agencies’ jurisdictions.  AT&T is not off the hook yet, however, as it faces a parallel action from the FCC, which has issued a Notice of Apparent Liability to AT&T, alleging that its disclosures in connection with its unlimited data plans violated the FCC’s “transparency” rules.  The FCC proposed $100 million in forfeitures for the violation, which sparked vigorous dissent by the two Republican commissioners and was opposed by AT&T in a strongly-worded response.  The FCC forfeiture proceeding remains pending.

Steve Augustino and Jameson Dempsey, of Kelley Drye’s Communication Group, co-authored this post.

On May 4, 2016, the FCC issued a Notice of Proposed Rulemaking to exempt robocalls made to collect “a debt owed to or guaranteed by the United States” from the TCPA’s prior express consent requirement. The new rules will implement a provision of the Bipartisan Budget Act of 2015. In its Notice, the Commission seeks comment on a number of issues, including as follows:

What types of calls should be covered by the exemption? The Budget Act created the TCPA exemption for calls made “solely to collect a debt” owed to the United States.  The Commission seeks comment on the proper interpretation of that language.  It also proposes to allow debt servicing calls under the exemption because such calls “may provide a valuable service by offering information about options and programs designed to keep at-risk debtors from defaulting or becoming delinquent on their loans.”  Finally, the Commission seeks comment on the proper interpretation and scope of the phrase “owed to or guaranteed by the United States.”
Who can be called? The Commission proposes that the exemption will cover “only calls to the person or persons obligated to pay the debt.”  It would exclude calls to persons who the caller does not intend to reach, and would apply the “one-call window” rule for reassigned numbers.  The Commission seeks comments on these proposals and asks commenters to provide alternative approaches they feel would be appropriate.
Who may place the calls? The Commission proposes that the exemption would cover calls made by creditors and those calling on their behalf, including agents.  It seeks comment on whether it should adopt this approach, or consider a narrower or broader interpretation under the Budget Act exemption.
How should the Commission limit the number and duration of the calls? The Budget Act provides the Commission with discretion to restrict covered calls, including by limiting the frequency and duration of the calls.  Thus, the Commission has proposed a three-call-per-month maximum for autodialed, prerecorded, or artificial voice calls to wireless numbers.  The limit would apply regardless of whether a call went unanswered.  The Commission posits whether a different limitation would be appropriate for live agent calls.  Without setting forth specific proposals, the Commission also seeks comment on the appropriate duration for the calls, as well as other restrictions (i.e., limiting calls hours to 8:00 AM to 9:00 PM).
Should consumers be permitted to stop covered calls? The Commission proposes “that consumers should have a right to stop [covered] calls at any point the consumer wishes.”  It proposes that stop-calling requests would continue to apply even after the debt is transferred to other collectors.  It further proposes to require callers to inform consumers of their right to make a stop-calling request.

Comments on the Commission’s proposals are due on June 6, 2016 and replies are due on June 21, 2016. Following the comment period, we expect the proceeding to move quickly because the Commission is statutorily mandated to adopt rules to implement the exemption no later than August 2, 2016.

On Monday, the FCC and FTC published a Memorandum of Understanding in which the two agencies agreed to engage in greater coordination and collaboration on consumer protection issues, with greater respect for each agency’s jurisdiction. The MOU comes at a time when both agencies are seeking to position themselves as protectors of consumers in the digital economy.

In the MOU, the agencies agreed to coordinate with one another “to protect consumers from acts and practices that are deceptive, unfair, unjust and/or unreasonable” and, specifically, to:

  • Coordinate on initiatives where one agency’s action will have a significant effect on the other agency’s authority or programs;
  • Consult on investigations or actions that implicate the jurisdiction of the other agency;
  • Meet regularly to review current marketplace practices, to share each agency’s work on consumer protection matters of common interest, and to exchange information about “the evolution of communications markets”;
  • Share enforcement techniques, tools, intelligence, expertise, and best practices in response to reasonable requests for assistance;
  • Collaborate on consumer and industry outreach and education efforts;
  • Engage in joint enforcement actions, where appropriate, and coordinate public statements; and
  • Share data regarding consumer complaints to the extent feasible, including through the FTC’s Consumer Sentinel Network.

The agencies also addressed the scope of the common carrier exemption, which exempts from the FTC’s jurisdiction common carriers subject to the Communications Act. Specifically, the FCC and FTC “expressed their belief” that the exemption does not extend to non-common carrier activities engaged in by common carriers, and that exercise of enforcement authority within one agency’s jurisdiction should not be taken to limit the authority of the other. While approaching jurisdictional issues more gingerly will certainly promote better relations between the agencies in the near term, ultimately, the scope of the “common carrier exemption” is an issue for the courts and Congress, and is unlikely to be solved soon.

Continue Reading FCC and FTC Announce Consumer Protection Memorandum of Understanding