Ninth Circuit Ruling Could Curtail FTC Enforcement For Businesses With Exempt Operations

By David Golden

The jurisdiction of the Federal Trade Commission could be significantly curtailed under the decision issued by the U.S. Court of Appeals for the Ninth Circuit in AT&T Mobility, Inc. v FTC.

Reversing the lower court, the Ninth Circuit found that the FTC did not have authority to bring an enforcement action against AT&T Mobility for inadequate disclosures to its subscribers regarding data throttling for mobile broadband Internet service.  According to the appellate court, AT&T Mobility’s “status” as a “common carrier” completely exempts all of its other non-common-carrier activities from FTC oversight under Section 5 of the Federal Trade Commission Act (“FTCA”).

Section 5 of the FTCA exempts certain categories of businesses from FTC authority.  Banks and credit unions are examples of exempt categories.  Common carriers are also examples.

AT&T Mobility argued that its status as a common carrier for voice services bars the FTC from regulating non-common carrier activity.  In addition to mobile broadband, AT&T Mobility also offers mobile voice services, which are regulated by the Federal Communications Commission as a “common carrier” service. The FTC argued that the Section 5 exemption for common carriers is “activity-based,” meaning that a common carrier is only shielded from potential liability when the activity at issue is a common carrier activity.  Based on its statutory interpretation of the FTCA, the Ninth Circuit agreed with AT&T Mobility.

AT&T Mobility based its appeal on the common-carrier classification of its mobile voice services.  At the time of the FTC’s original complaint in 2014, mobile broadband was regulated as an “information service” under Title 1 of the Communications Act.  In its 2015 Net Neutrality order, the FCC reclassified mobile broadband under Title II of the Communications Act as a common carrier service.  The U.S. Court of Appeals for the D.C. Circuit recently affirmed the FCC’s regulation of broadband Internet service as a common-carrier service under Title II of the Communications Act.

The Ninth Circuit’s decision calls into question the scope of the FTC’s jurisdiction over telecommunication companies and other regulated businesses.  Could a large company purchase a small cable company that provides common-carrier broadband services and be shielded from FTC enforcement actions?  Probably not under the Ninth Circuit’s decision, which states that AT&T Mobility’s exempt status is not due to its “acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue.”  But what about a company whose core business is related to common carrier activities but that is also diversified into other lines of business that are not exempt under Section 5?  In that situation, the status-based exemption could apply to the non-exempt divisions and shield those activities from FTC authority.

The FTC could file a petition for an en banc review by the Ninth Circuit, or perhaps a petition to the Supreme Court.  We will provide further updates on this case as the situation develops.

– Edited by Gary J. Malone