United States: Ninth Circuit Calls Common Carrier Exception "Activity-Based"

On February 26, 2018, an en banc federal appeals court held that the common carrier exception in the Federal Trade Commission (FTC) Act that preempts FTC jurisdiction is "activity-based" rather than "status-based" and therefore applies only to the extent an entity engages in common-carrier services. See FTC v. AT&T Mobility LLC, No. 15-16585, D.C. No. 3:14-cv-04785EMC (Opinion) (9th Cir. Feb. 26, 2018). The decision affirmed the Northern District of California's denial of AT&T Mobility LLC's motion to dismiss.

In 2010, AT&T switched its mobile data plan offering from "unlimited" to "tiered" but allowed existing customers to retain their unlimited data plans. In 2011, AT&T reduced unlimited customers' broadband data speed without regard to actual network congestion if they exceeded a preset limit. The FTC filed an action in October 2014 under section 5 of the FTC Act, alleging AT&T's data-throttling plan was unfair and deceptive. AT&T moved to dismiss, arguing it was exempt due to common carrier status.

Section 5 exempts "common carriers subject to the Acts to regulate commerce." 15 U.S.C. § 45(a)(1), (2). Although providing mobile data was not a "common carrier service" at the time the FTC filed suit, the Federal Communications Commission (FCC) reclassified mobile data as a common-carriage service in 2015 while AT&T's motion to dismiss was pending. See In the Matter of Protecting and Promoting the Open Internet, 30 F.C.C. Rcd. 5601, 5734 n.792 (2015) (Reclassification Order). The FCC reversed the Reclassification Order in early 2018. See In the Matter of Restoring Internet Freedom, W.C. Dkt. No. 17-108, 2018 WL 305638, at *1 (Jan 4, 2018).

Despite an appeal panel's conclusion on interlocutory review that the common carrier exception is status based, FTC v. AT&T Mobility LLC, 835 F.3d 993 (9th Cir. 2016), the en banc court found the text of the FTC Act, the historical meaning of "common carrier," the expertise of the FTC and the FCC, and legislative history support an activity-based test and that the 2015 Reclassification Order does not apply retroactively.

Implications: The Ninth Circuit's interpretation that the common carrier exception is activity based may give rise to a more intense, circumstance-driven analysis of common carrier-related activities. The FTC has aggressively sought to regulate unfair and deceptive trade practices and has called for repeal of the common carrier exception in the past. With ongoing debates about net neutrality, the decision and the agency's activities in this area signal that an important law enforcement officer is on the beat and willing and able to bring cases where it thinks it is appropriate to protect consumers.

This article is presented for informational purposes only and is not intended to constitute legal advice.