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Federal Trade Commission v. AT&T Mobility LLC

United States Court of Appeals, Ninth Circuit

February 26, 2018

Federal Trade Commission, Plaintiff-Appellee,
v.
AT&T Mobility LLC, a limited liability company, Defendant-Appellant.

          Appeal from the United States District Court for the Northern District of California, D.C. No. 3:14-cv-04785-EMC Edward M. Chen, District Judge, Presiding

          Argued and Submitted En Banc September 19, 2017 San Francisco, California

          Michael Kellogg (argued) and Mark C. Hansen, Kellogg Huber Hansen Todd Evans & Figel P.L.L.C., Washington, D.C.; David L. Anderson, Sidley Austin LLP, San Francisco, California; for Defendant-Appellant.

          Joel Marcus (argued), Director of Litigation; Matthew M. Hoffman and David L. Sieradzki, Attorneys; David C. Shonka, Acting General Counsel; Evan Rose, Matthew D. Gold, and Linda K. Badger, Of Counsel; Federal Trade Commission, Washington, D.C.; for Plaintiff-Appellee.

          Jacob M. Lewis, Associate General Counsel; Scott M. Noveck, Counsel; Jacob M. Lewis, Associate General Counsel; David M. Gossett, Deputy General Counsel; Howard J. Symons and Brendan Carr, General Counsel; Federal Communications Commission, Washington D.C.; for Amicus Curiae Federal Communications Commission.

          Seth E. Mermin, Samantha K. Graff, and Thomas Bennigson, Public Good Law Center, Berkeley, California, for Amici Curiae Consumers Union, Consumer Federation of America, Consumer Federation of California, Consumer Action, National Association of Consumer Advocates, National Consumers League, Center for Digital Democracy, Center for Democracy & Technology, Electronic Privacy Information Center, Benton Foundation, Common Sense Kids Action, and Privacy Rights Clearinghouse.

          Paul K. Ohm, Professor, Georgetown University Law Center, Washington, D.C.; William McGeveran, Associate Professor, University of Minnesota Law School, Minneapolis, Minnesota; for Amici Curiae Data Privacy and Security Law Professors.

          Charles Duan, M. Ryan Clough, John Gasparini, Sara Kamal, and Jaime Petenko, Public Knowledge, Washington, D.C., for Amicus Curiae Public Knowledge.

          Adin H. Rosenbaum and Sean M. Sherman, Public Citizen Litigation Group, Washington, D.C., for Amicus Curiae Senator Richard Blumenthal.

          Andrew Jay Schwartzman and Laura Moy, Institute for Public Representation, Georgetown University Law Center, Washington, D.C., for Amicus Curiae Social Justice Organizations.

          Patrick J. Massari, Michael Pepson, and Cynthia Crawford, Cause of Action Institute, Washington, D.C., for Amicus Curiae Cause of Action Institute.

          Henry Weissmann, Munger Tolles & Olson LLP, Los Angeles, California; Donald B. Verrilli Jr. and Chad I. Golder, Washington, D.C.; for Amici Curiae Charter Communications, Comcast Corporation, Cox Communications, and Verizon.

          Before: Sidney R. Thomas, Chief Judge, and Stephen Reinhardt, Susan P. Graber, M. Margaret McKeown, William A. Fletcher, Johnnie B. Rawlinson, Milan D. Smith, Jr. [*] , N. Randy Smith, Jacqueline H. Nguyen, Paul J. Watford and Michelle T. Friedland, Circuit Judges.

         SUMMARY[**]

         Federal Trade Commission

         The en banc court affirmed the district court's denial of AT&T Mobility's motion to dismiss an action brought by the Federal Trade Commission ("FTC") under Section 5 of the FTC Act, alleging that AT&T's data-throttling plan was unfair and deceptive.

         AT&T Mobility's data-throttling is a practice by which the company reduced customers' broadband data speed without regard to actual network congestion. Section 5 of the FTC Act gives the agency enforcement authority over "unfair or deceptive acts or practices, " but exempts "common carriers subject to the Acts to regulate commerce." 15 U.S.C § 45(a)(1), (2). AT&T moved to dismiss the action, arguing that it was exempt from FTC regulation under Section 5.

         As a threshold issue, the en banc court held that the federal district court had federal question jurisdiction because the dispute was one "arising under federal law, " and the motion to dismiss was more properly treated as a Fed.R.Civ.P. 12(b)(6) motion for failure to state a claim.

         The en banc court held that the FTC Act's common-carrier exemption was activity-based, and therefore the phrase "common carriers subject to the Acts to regulate commerce" provided immunity from FTC regulation only to the extent that a common carrier was engaging in common-carrier services. In reaching this conclusion, the en banc court looked to the FTC Act's text, the meaning of "common carrier" according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission ("FCC"), and legislative history.

         Addressing the FCC's order, issued on March 12, 2015, reclassifying mobile data service from a non-common-carriage service to a common carriage service, the en banc court held that the prospective reclassification order did not rob the FTC of its jurisdiction or authority over conduct occurring before the order. Accordingly, the en banc court affirmed the district court's denial of AT&T's motion to dismiss.

          OPINION

          McKEOWN, Circuit Judge.

         Although this case began as an effort by the Federal Trade Commission ("FTC") to address AT&T Mobility's "data throttling"-a practice by which the company reduced customers' broadband data speed without regard to actual network congestion-the central issue is one of agency jurisdiction and statutory construction.

         Section 5 of the Federal Trade Commission Act ("FTC Act"), which gives the agency enforcement authority over "unfair or deceptive acts or practices, " exempts, among others, "common carriers subject to the Acts to regulate commerce." 15 U.S.C. § 45(a)(1), (2). The question is whether the common-carrier exemption is activity-based, meaning that a common carrier is exempt from FTC jurisdiction only with respect to its common-carrier activities, or status-based, such that an entity engaged in common-carrier activities is entirely exempt from FTC jurisdiction.

         We affirm the district court's denial of AT&T's motion to dismiss. Looking to the FTC Act's text, the meaning of "common carrier" according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission ("FCC"), and legislative history, we conclude that the exemption is activity-based. The phrase "common carriers subject to the Acts to regulate commerce" thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services.

         This statutory interpretation also accords with common sense. The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications. New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company. The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement.

         Background and Procedural History[1]

         In 2007, AT&T Mobility LLC ("AT&T") was the exclusive provider of mobile data services for the Apple iPhone. AT&T initially offered iPhone customers a service plan with "unlimited" mobile data for a flat monthly fee. In 2010, however, AT&T stopped offering unlimited mobile data plans to new smartphone customers. Instead, AT&T offered "tiered" mobile data plans. Under the new tiered plans, a customer who exceeded a specified data allowance would be charged for any additional data at a rate set by AT&T. Legacy customers who previously signed up for unlimited data, however, were grandfathered and allowed to keep their existing service plans.

         In 2011, AT&T began reducing the data speed for its unlimited mobile data plan customers-a practice commonly known as "data throttling." For example, if a customer with an unlimited mobile data plan exceeded a certain usage limit, AT&T would substantially reduce the speed at which the customer's device would receive data for the balance of the customer's billing cycle. Customers experienced reduced speed when they exceeded the preset limit, regardless of actual network congestion. AT&T did not apply the data-throttling practice to customers on tiered plans.

         According to the FTC, AT&T made limited disclosures about its data-throttling practice. Although AT&T did alert some customers about the practice via text message, a monthly bill, or e-mail, it did not inform unlimited data customers of the degree to which their data speed would be reduced. AT&T's wireless customer agreements for unlimited data customers did not reveal that the use of more than a specified amount of data would trigger a slowdown. Nor did AT&T disclose that speed reductions were intentional rather than the result of network congestion.

         Based on these practices, the FTC brought suit against AT&T under Section 5 of the FTC Act. 15 U.S.C. § 45. The FTC alleged that AT&T's data-throttling program was unfair and deceptive because the company advertised "unlimited mobile data, " but in fact imposed restrictions on data speed for customers who exceeded a preset limit.

         AT&T moved to dismiss the suit, arguing that it was exempt from FTC regulation under Section 5 because it is a "common carrier[] subject to the Acts to regulate commerce." 15 U.S.C. § 45(a)(2). In AT&T's view, the common-carrier exemption may be invoked so long as an entity has the "status" of a common carrier. That is, if an entity qualifies as a common carrier, all of its activities are immune from regulation under Section 5, regardless of whether the entity provides both common-carriage and non-common-carriage services.

         In response, the FTC claimed that AT&T was exempt from jurisdiction only "to the extent that it provides a common carrier service." In the FTC's view, the common-carrier exemption applies only to the extent that an entity actually engages in common-carrier activities. Under this "activity-based" interpretation, an entity's non-common-carriage activities are subject to FTC regulation. At the time the FTC filed suit, mobile data provision was not a "common carrier service."

         While AT&T's motion to dismiss was pending, the FCC issued an order changing its classification of mobile data, such that it would be treated as a common-carriage service rather than a non-common-carriage service, but "only on a prospective basis."[2] See In the Matter of Protecting and Promoting the Open Internet, 30 F.C.C. Rcd. 5601, 5734 n.792 (2015) (the "Reclassification Order").

         In response to this regulatory change, AT&T took the position that it was a common carrier under any construction of Section 5, and that the FTC was no longer empowered to pursue its claims, either past or present, against the company. The FTC countered that the lawsuit remained live ...


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