Ninth Circuit Decision Provides Critical Win to FTC in its Authority over Internet Service Providers

By Matthew DelNero on February 28, 2018

Posted in Trade Agreements, Uncategorized

In a ruling with implications for both net neutrality and privacy, the Ninth Circuit ruled en banc today that the common carrier exemption in Section 5 of the FTC Act is activity-based, reversing a 2016 panel ruling that the exemption was status-based. Today’s decision bolsters the FTC’s authority to bring consumer protection (including privacy) and competition actions against providers of Internet access service, which the FCC has ruled is not a common carrier service in connection with that agency’s repeal of net neutrality rules.

This appeal arises from the FTC’s lawsuit against AT&T alleging that AT&T’s practice of throttling the speed of customers with unlimited data plans once they reached a certain data usage threshold violated Section 5 of the FTC Act. AT&T had challenged the FTC’s authority to bring the case, arguing that the company was immune from FTC oversight because it also offers common carrier (e.g., voice telephone) service. Although the district court sided with the FTC on this question, a 2016 Ninth Circuit panel went the other way and, in doing so, created what the FTC and FCC agreed was a potential ‘gap’ in authority in which neither agency would have the right to police many actions by telecommunications companies.

The Ninth Circuit’s opinion begins with the text and history of Section 5, noting that it provides “limited guidance, albeit pointing to an activity-based interpretation.” The court rejected AT&T’s arguments based on language in later amendments (or failed amendments) to the FTC Act that pointed to a status-based exemption because “the view of a later Congress cannot control the interpretation of an earlier enacted statute.” Turning to the common-law meaning of “common carrier,” the court found that the “well-understood meaning” of the term reflected in judicial decisions both before and after the FTC Act’s 1914 passage is that entities may be considered common carriers for some purposes but not others.

The Ninth Circuit also relied on agency interpretation of the common-carrier exemption by both the FTC and the FCC, noting that both agencies have long supported an activity-based approach to the common carrier exemption. Rejecting AT&T’s argument that telecommunications providers must be regulated solely by the FCC, the court found that concurrent jurisdiction is commonplace among federal agencies, citing for example the shared jurisdiction of the FTC and the Department of Justice with respect to antitrust matters.

Finally, the en banc court addressed the effect of the FCC’s 2015 reclassification of mobile broadband as a common-carriage service on the outcome of the appeal. Relying on the strong presumption against retroactivity and explicitly prospective language in the 2015 order (and the 2018 order reversing the 2015 order), the Ninth Circuit held that the reclassification order “does not rob the FTC of its jurisdiction over conduct occurring before the order” and had no effect on the outcome of this appeal.

The Chairman of the FCC and Acting Chair of the FTC both welcomed the en banc panel’s decision. In confirming that the FTC has authority over non-common carrier activities, the en banc panel’s decision removed at least one obstacle to a central thesis of the FCC’s decision repealing net neutrality rules: that the FTC, as a consumer protection and competition agency, should take the lead in overseeing the practices of Internet Service Providers.