SAN FRANCISCO – On Aug. 29 the U.S. Court of Appeals for the 9th Circuit dismissed a Federal Trade Commission (FTC) lawsuit against AT&T accusing it of slowing data speeds, or data throttling, on customers subscribed to unlimited smartphone data plans without clearly disclosing the policy.

The case has implications for future jurisdictional lines between the FTC and Federal and the Communications Commission (FCC) for regulating the telecom industry.

The data-throttling lawsuit, filed in October 2014 by the FTC, accused AT&T of deception and failure to clearly disclose its throttling policy to customers.

The FTC alleged that AT&T began throttling data speeds in 2011 and throttled at least 3.5 million unlimited data customers. In some cases, data speeds were slowed by nearly 90 percent, the suit claimed.

“AT&T had been offering unlimited data plans but switched to a monthly cap,” Doug Brake, telecommunications policy analyst at the Washington D.C.-based Information Technology and Innovation Foundation, told the Northern California Record. “Customers with unlimited data were grandfathered in, but then AT&T tried to nudge them off the grandfathered unlimited plans because it was not economical, so they would throttled them down to a lower speed.”

A few months later, the FCC brought an enforcement action worth $100 million against AT&T for the same internet throttling activities that the FTC cited. AT&T has contested the proposed FCC fine.

AT&T defended itself in the case by citing the “common carrier exemption” within Section 5 of the FTC Act, which says that the FTC does not have jurisdiction over common carriers. The FTC’s lawsuit was originally filed before net neutrality rules set by the FCC in 2015 came into effect that reclassified mobile data as a common carrier service. AT&T argued that as a common carrier it falls under the regulatory watch of the FCC. In addition, AT&T contested against simultaneous actions by both the FTC and the FCC.

The 9th Circuit Court agreed with AT&T’s arguments and ruled that since AT&T is a wireless company it is also a common carrier and cannot be held liable for the violations that the FTC brought in its case. The federal appeals court ordered a lower court to dismiss the lawsuit.

At the time the lawsuit was filed, AT&T had status as a common carrier for voice service but not for broadband services, Brake said. The FCC later classified broadband providers in 2015 as a common carrier under Title II when it wrote the net neutrality rules.

Brake said the implications of the case still present the issue of which body – the FTC or the FCC – has regulatory authority over telecom companies.

At issue is the definition of common carriers, Brake said, which includes non-telecom commerce industries such as banks, railroads and airlines.

“The court took a narrow interpretation by looking at the FTC Act, but what is worrisome is the definition of common carriers within the FCC,” said Brake. “There is a gap between the two where a company can have the status of a common carrier but be engaged in non-common carrier activities. The question is who oversees those issues.”

Brake said examples include telecom companies, such as Comcast, that also operate home security services.

Brake said that the FTC will likely petition for a rehearing, but ultimately Congress needs to address the common carrier exemption and rework the jurisdictional lines between the FTC and the FCC.

Jan Dawson, chief analyst at Jackdaw Research, a technology research and advisory firm, told the Northern California Record that he doesn’t think the effects of the 9th Circuit Court decision will be far-reaching.

"Carrier advertising around unlimited has evolved since this case was filed, and all carriers are now both more transparent and set more limits around their unlimited data services,” said Dawson. “Consumers may not like it, but neither they nor the FTC have any legal grounds for taking action on that basis. Net neutrality isn't covered by this specific case, and the FCC rules on that subject remain intact despite legal challenges.”

"We're pleased with the decision," a spokesperson for AT&T wrote in an emailed comment to the Northern California Record.

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9th Circuit Appellate Court, San Francisco U.S. Federal Communications Commission U.S. Federal Trade Commission

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