Ninth Circuit Knee-Caps Federal Trade Commission. Or: “You Know Nothing, Josh Wright.”

Back in October 2014, before the Federal Communications Commission (FCC) reclassified as Title II, both the FCC and the Federal Trade Commission (FTC) brought complaints against AT&T Mobility for failure to disclose the extent they throttled “unlimited” customers once they passed a fairly low monthly limit. You can see the FCC Notice of Apparent Liability (NAL) here. You can see the FTC complaint, filed in the district court for Northern California, here (press release here). As some of you may remember, the FCC was still debating whether or not to reclassify broadband as a Title II telecom service.  Opponents of FCC reclassification (or, indeed, of any FCC jurisdiction over broadband) pointed to the FTC enforcement action as proof that the FTC could handle consumer protection for broadband and the FCC should avoid exercising jurisdiction over broadband altogether.

 

In particular, as noted in this Washington Post piece, FTC Commissioner Maureen Olhausen (R) and then-FTC Commissioner Joshua Wright (R), both vocal opponents of FCC oversight of broadband generally and reclassification specifically, tweeted that the FTC complaint showed the FTC could require broadband providers to keep their promises to consumers without FCC net neutrality rules. Wright would subsequently reiterate this position in Congressional testimony, pointing to the FTC’s enforcement complaint under Section 5 of the Federal Trade Commission Act (FTCA) (15 U.S.C. 45) as an “unfair and deceptive” practice to prove that the FTC could adequately protect consumers from potential harms from broadband providers.

 

Turns out, according to the Ninth Circuit, not so much. As with so much the anti-FCC crowd asserted during the net neutrality debate, this turns out (pending appeal) to be dead wrong. Why? Contrary to what some people seem to think, most notably the usual suspects at Cable’s Team Rocket (who are quoted here as saying “reclassifying broadband means the FTC can’t police any practices of common carriers, at least in the Ninth Circuit” which is either an utterly wrong reading of the case or an incredibly disingenuous remark for implying that reclassification had something to do with this decision. You can see their full press release, which borders on the Trump-esque for its incoherence, here.)

 

As I explain below, the Ninth Circuit’s decision did not rest on reclassification of broadband. To the contrary, the court made it explicitly clear that it refused to consider the impact of reclassification because, even assuming mobile broadband was not a Title II service, AT&T Mobility is a “common carrier” by virtue of offering plain, ordinary mobile voice service (aka “commercial mobile radio service,” aka CMRS). The Ninth Circuit agreed with AT&T that because AT&T offers some services as common carrier services, AT&T Mobility is a “common carrier” for purposes of Section 5(a)(2) of the FTCA and thus exempt from FTC enforcement even for its non-common carrier services.

 

Given that Tech Freedom and the rest of the anti-FCC gang wanted this case to show how the Federal Trade Commission could handle all things broadband, I can forgive — and even pity — Tech Freedom’s desperate effort in their press release to somehow make this the fault of the FCC for reclassifying and conjuring an imaginary “gap” in broadband privacy protection rather than admit Congress gave that job to the FCC. After all, denial is one of the stages of grief, and it must come as quite a shock to Cable’s Team Rocket to once again see that Team PK-chu was right after all (even if it doesn’t make me particularly happy that we were, for reasons I will explain below). But this is policy, not therapy.  As of today, instead of two cops on the beat for broadband consumer protection access, we have one — the Federal Communications Commission. Fortunately for consumers, the FCC has been taking this job quite seriously with both enforcement actions and rulemakings. So while I consider it unfortunate that Ninth Circuit has cut out the FTC on non-common carrier related actions by companies offering a mix of common carrier and non-common carrier services, the only people who need to panic are Tech Freedom and the rest of the anti-FCC crowd.

 

OTOH, longer term, this does create a more general concern for consumer protection in more deregulated industries (such as airlines) covered by the exemptions in Section 5 of the FTCA. Yes, I know most folks reading this blog think the universe revolves around broadband, but this decision impacts airlines, bus services, private mail services like UPS, and any other company offering a common carrier service “subject to the Acts to regulate Commerce.” (15 U.S.C. 45(a)(2))  (Also meat packers and a few other named exceptions). So while I am hopeful the FTC appeals this to the full Ninth Circuit for en banc review (and even the Supreme Court, if necessary) from a general consumer protection perspective, the only direct result of this case for broadband policy is to underscore how important it is for the FCC to do its job despite the industry nay-sayers and their Libertarian cheerleaders.

 

More below . . .

 

I can’t help but brag a bit that I predicted this result all the way back in 2007 when we were first arguing the FCC v. FTC question (also the blog post where I described the cycle of increased capacity yields increased demand yields increased investment, which I called the “virtuous cycle,” about 3 years before the FCC finally agreed with me. I was indeed on a roll that day. It also has a nice bit about regulatory chameleons and Alice in Wonderland.) So once again, Team PK-chu triumphs over Cable’s Team Rocket. Unfortunately, this is one of those times where I would much rather have been wrong than right. While the Ninth Circuit’s decision (if not reversed) demonstrates the wisdom of the FCC’s reclassification — since without reclassification consumers would now have virtually no protections in the mobile broadband space — it seriously kneecaps the Federal Trade Commission outside the area of broadband access/telecommunications generally.

 

What Did The Ninth Circuit Say?

 

The Court in AT&T Mobility v. FTC approached the question of whether the exemption from FTC enforcement in Section 5(a)(2) of the FTCA is “status based” or “activity based.” AT&T argued that the exemption is “status based.” If a business is classified as a “common carrier” for any reason, it acquires the “status” of common carrier, and even its non-common carrier activities are immune to FTC jurisdiction. Here, AT&T Mobility argued that was already a common carrier because it offered mobile voice service, classified since its inception under 47 U.S.C. 332 as a “Commercial Mobile Radio Service” (CMRS) (arguably the quintessential CMRS service) and therefore regulated under the Communications Act as a Title II telecommunications service. This “status” as a common carrier mobile telephone service provider therefore shielded it’s non-common carrier services (here, mobile broadband as offered between 2011-2014).

 

The FTC argued — consistent with positions it has taken in the past — that Section 5(a)(2) exemptions apply on an “activity” basis. When a company like AT&T Mobility is acting as a common carrier — i.e., when actually selling and delivering mobile telephone service — it is exempt from Section 5. When the company does other things unrelated to its common carrier activity, like sell mobile broadband when mobile broadband is classified as an information service and therefore explicitly CANNOT be regulated as a common carrier (because Section 332 of the Communications Act says that services that are not CMRS or the functional equivalent are “private mobile radio services” or “PMRS,” and cannot be “treated as a common carrier”), then those activities are subject to Section 5 of the FTCA.

 

 

The district court in 2015 found that the FTC was right and that the case could proceed because AT&T Mobility’s broadband service was not a common carrier service during the time covered by the complaint (2011-14). The Ninth Circuit Court of Appeals reversed. It sided with AT&T Mobility that because AT&T Mobility offered CMRS mobile voice service, it was a “common carrier” and therefore had the “status” of a common carrier, even with regard to its non-common carrier activities.

 

I stress again, the court was extremely explicit that this had nothing to do with the FCC’s subsequent reclassification decision. How explicit? Here’s the relevant quote:

 

“Because we conclude that the common carrier exemption is a status-based exemption that excludes AT&T from section 5’s coverage, we need not address AT&T’s remaining arguments regarding overlapping regulation and the effect of the FCC’s Reclassification Order.

“The common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers. Those entities are not covered by section 5 even as to non-common carrier activities.”

When the court says explicitly that it is not addressing AT&T’s arguments about the impact of the broadband reclassification decision, that settles the matter. Tech Freedom’s statement that “This is just another unintended consequence of the FCC’s 2015 decision to reclassify broadband” and “reclassifying broadband means the FTC can’t police any practices of common carriers,” they are either being utterly incompetent in how they read the case (since, as noted above, the court was not exactly subtle here) or just out and out dishonest.

 

Mind you, I understand why Tech Freedom desperately wants to read the case this way. Tech Freedom bet big (along with former Commissioner Wright and sitting Commissioner Olhausen) that the FTC could do the job of protecting consumers of broadband access services and that the FCC should have no jurisdiction over broadband services. At the time, this proposition was at least tenable. But when the court says you’re wrong — the FTC never had authority to police mobile broadband because mobile broadband providers are “common carriers” by virtue of their mobile voice service offering, then you ought to admit the court ruled against you and not make shit up. Sure, call the court all kinds of names for making a stupid ruling contrary to the obvious meaning of the law — I do that myself all the time. But as my old civ pro professor used to say: “They wear the robes. They make the law. They didn’t ask me.”

 

There Is No “Gap” in Consumer Protection For Broadband, For Now.

 

Likewise, Tech Freedom’s insistence that there is a “gap” in consumer protection that only Congress can solve has no basis in actual reality. Rather, it is firmly rooted in Tech Freedom’s obsessive hatred of the FCC exercising authority over broadband access services in any way shape or form. Again, you can take whatever position you want. But if you want people take you seriously as a policy organization, you ought to at least acknowledge what the law is — even if you want to change it. Otherwise, you only get taken seriously by your fan base.

 

Mind you, if the FCC had listened to Cable’s Team Rocket rather than to Team PK-chu, we would have a very serious problem on our hands. The FTC could still protect consumers from cable broadband abuses under Section 5 (albeit not in the same way as the FCC, particularly wrt net neutrality), but would be prohibited from acting against DSL providers or mobile broadband providers because these services are offered by telephone companies that enjoy “common carrier status” by virtue of their traditional plain old telephone service (“POTs”) and mobile voice CMRS service. Happily, the FCC’s reclassification has provided a single, regulatory framework capable of protecting consumers on issues of privacy (by virtue of 47 U.S.C. 222) and consumer protection generally (by virtue of 47 U.S.C. 201(b)).

 

For Tech Freedom and like minded folks, this is the worst of all possible worlds. Not only is their preferred regulatory agency, the FTC, no longer a viable alternative to the FCC, but reversing the reclassification decision would not help. Hence Cable Team Rocket’s statement that the Ninth Circuits decision “will ’embolden the FCC’ into actually doing its job, and the plea for Congress to pass new legislation to adopt new legislation.

 

Mind you, Congress could easily create a gap in consumer protection on broadband by passing any of the laws proposed by House Republicans to undermine the FCC’s privacy and or consumer protection jurisdiction. This includes “policy riders” included in the proposed House appropriation bill, such as the “Blackburn Amendment” to prohibit the FCC from enforcing any privacy rules for broadband and the elimination of a significant consumer protection authority under the guise of prohibiting “rate regulation.” The Ninth Circuit opinion certainly ought to give even members of Congress who dislike the current policy outcome at the FCC reason to wait until an actual legislative session to carefully consider what to do, rather than try to hijack the appropriations process to insert language that would leave consumers unprotected by any federal consumer protection law.

 

The Much More Serious Long Term Complications For Telecom, Tech and Consumer Protection Generally.

 

There is, however, one kernel of truth hidden in Tech Freedom’s statement on the Ninth Circuit case. What happens to businesses like AOL that are plainly “edge providers” not generally subject to FCC authority, but are owned by common carriers like Verizon? Pressing further, does Google Fiber convey “common carrier status” to Google Search? Can Facebook get out of FTC jurisdiction by buying a small rural wireless carrier? Can Amazon get out of FTC jurisdiction by buying a bank and getting into online mobile payments? Outside of the world of tech, can GM get out of FTC regulation for its car business by developing its proposed autonomous car driving service and registering that with the Federal Motor Carrier Safety Administration as a common carrier interstate busing service?

 

The Ninth Circuit opinion, unfortunately, offers relatively little guidance. The only statement relevant to this question is a single sentence distinguishing a previous case favorable to the FTC. ““AT&T’s status as a common carrier is not based on its acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue,” said the Court, without providing any details on just how much a common carrier business (or other exempt business) a company has to do before it acquires an exempt “status.” On the one hand, we can argue for an extremely narrow interpretation based on the specific facts of AT&T Mobility. After all, as AT&T argued (but the court did not explicitly elaborate upon) AT&T Mobility started life as a common carrier providing CMRS mobile voice service. That voice offering still remained (at least in the time frame in question), the core of AT&T Mobility’s business.   AT&T still required smart phone customers to get voice contracts as well as data contracts. AT&t offered the mobile broadband services over the same facilities over which it offered its common carrier service, and billed customers on the same bill. It is easy to understand why the Court would treat AT&T Mobility as primarily a common carrier, with an associated and intertwined line of business offering non-common carrier mobile broadband access.

 

On the flip side, Google Fiber really would be the quintessential “minor division unrelated to the company’s core activities.” Google Fiber and Google Search are now wholly separate companies, albeit commonly owned by one holding company called Alphabet. Still, no one has any trouble separating the activities of the global multi-billion Google Search from the relatively small, domestic Google Fiber held by parent company. It therefore seems most likely that Google Fiber does not convey “common carrier status” to Google Search via common ownership by Alphabet. Nor does it seem likely that Facebook could exempt itself from FTC oversight by buying a small rural telco.

 

Between these two extremes, however, lies a great deal of uncertainty.  As Tech Freedom points out, AOL is an edge provider. It is a wholly owned subsidiary of Verizon Enterprise, Inc. Verizon Enterprise also owns Verizon Communications, Inc., which is a common carrier landline company, and Verizon Wireless, the largest mobile common carrier in the United States. While AOL’s business activities are fairly segregatable from those of the common carrier subsidiaries, Verizon is increasingly trying to integrate these activities and share information among them.

 

Does this give AOL “common carrier” status? On the basis of the very limited information in this case, it’s hard to say. Given that one reason for exempting common carriers, banks and other businesses is that they have other regulators, do we consider whether AOL is not reachable by the FCC because the FCC may not regulate a telecommunications carrier’s non-Title II offerings as a common carrier? Do we care that this was an acquisition? Do we compare AOL’s earnings to the “core” earnings of Verizon from its common carrier businesses? Does it matter if AOL remains traded as a separate stock?

 

Going back to AT&T, what about DIRECTV? That was an acquisition, its business is huge and clearly distinguishable from AT&T’s common carrier service as matter of facilities used to deliver the service — unlike AT&T Mobility’s broadband service. DIRECTV already had millions of independent subscribers to its non-common carrier MVPD service before AT&T the common carrier acquired it. But DIRECTV is no longer separately traded and AT&T has made increasing efforts to integrate DIRECTV into its operations, including its advertising business which is “multiplatform” across common carrier and non-common carrier services.

 

We have no guidance in the Ninth Circuit opinion on these questions. That obviously creates real problems going forward. Again, these problems don’t stop at the telecom world/tech world interface. The exemptions in Section 5(a)(2) include banks, air carriers, and number of other traditional bricks and motor services. The nature and complexity of corporate relations have changed enormously since Congress adopted the FTCA and the various exceptions in Section 5(a)(2) back in 1914. Similarly, the way in which agencies charged with regulating common carriers, banks and other exempt business has changed. Until we started aggressively deregulating about 40 years ago with Airline deregulation in the Carter Administration, regulators of these kind of exempt services regulated the exempt services pervasively, including whether or not the regulated entities could offer the non-exempt service. Nowadays, of course, we no longer do anything of the sort. The Federal Motor Carrier Safety Administration, for example, has virtually no regulatory oversight of the services that register with it. But these services are still exempt as common carriers “subject to the Acts to regulate Commerce.”

 

 

So even if we say the Ninth Circuit is right, there is no obvious point between the extremes of AT&T Mobility on one hand (non-common carrier service offered by a business that is primarily common carrier) and Google (tiny common carrier service offering by an affiliate). If the decision stands (and I hope the FTC appeals), the FTC is going to need to issue some kind of guidance on this. Or Congress will need to step in with a real and comprehensive fix. Keep in mind, however, that it’s not just going to be cable and telco broadband providers coming to the table on that. Every trucking fleet, bus line, airline, freight carrier, bank, savings and loan, and even meat packers are going to want a seat at that table. If Cable Team Rocket and the FCC haters think they can generate a quickie consensus on this legislation because “hey, we all hate the FCC,” they are once again living in their delusional little world where policy revolves around their preferences.

 

Conclusion

 

So, to wrap things up.

(1) The Ninth Circuit decision was not a result of the FCC broadband reclassification. The court was very specific about the fact that this depended on AT&T’s status as a common carrier voice provider.

(2) In the short term, there is no “privacy gap” or other consumer protection gap that Congress needs to rush to address. While the loss of the FTC as a partner and fellow “cop on the beat” for the FCC is unfortunate, it’s not crippling. It does, however, emphasize the importance of the FCC’s role as the only agency able to protect consumer privacy and otherwise prevent abusive behavior by broadband access providers. (“Help us FCC, you’re our only hope.”)

(3) In the ideal world, this would mean that Republicans stop playing political games trying to get bills and riders passed that would significantly undermine the FCC’s much needed role as the agency charged with subscribers to broadband access service and try to engage seriously on what, if any, legislative changes they want to make. History, however, is not encouraging. Hopefully the Senate will be more thoughtful on this than the House as we move into final budget negotiations.

(4) OTOH, there are a lot of long-term implications that need to get worked out if this case stands. It’s a huge deal for broader FTC jurisdiction and consumer protection.

(5) I am utterly unable to resist a bad SF&F reference. Hence the “You know nothing, Josh Wright” Game of Thrones Shout Out. Also, I think calling my employer “Team PK-chu” is too cute for words.

 

Stay tuned . . . .

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