Court Decision on FTC Authority Bolsters the Legal Basis of the Restoring Internet Freedom Order

On February 26, the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, decided unanimously that common carriers are exempt from Federal Trade Commission jurisdiction under Section 5 of the FTC Act only with respect to common-carrier activities. The Ninth Circuit’s decision effectively vindicates the premise of the FCC’s Restoring Internet Freedom Order (2017) that the FTC has authority to pursue enforcement actions against broadband Internet access providers for deceptive or unfair trade practices. The FCC’s order reclassified broadband Internet access services as “information services” under Title I of the Communications Act, and repealed the Obama Administration’s common carrier classification of those services under Title II.

On behalf of the Ninth Circuit en banc panel, Judge M. Margaret McKeown observed that the FTC’s Section 5 authority over “unfair and deceptive trade practices exempts, among other things, “common carriers subject to the Acts to regulate commerce.” The introductory section to the en banc opinion succinctly frames the issue before the court and then announces its decision and underlying rationale:  

The question is whether the common-carrier exemption is activity-based, meaning that a common carrier is exempt from FTC jurisdiction only with respect to its common-carrier activities, or status-based, such that an entity engaged in common-carrier activities is entirely exempt from FTC jurisdiction.  

We affirm the district court's denial of AT&T's motion to dismiss. Looking to the FTC Act's text, the meaning of "common carrier" according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission ("FCC"), and legislative history, we conclude that the exemption is activity-based. The phrase "common carriers subject to the Acts to regulate commerce" thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services.  

This statutory interpretation also accords with common sense. The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications. New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company. The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement. 

Later, the Ninth Circuit’s en banc opinion effectively confirmed that the FCC’s Title II Order (2015) stripped the FTC of its Section 5 authority to address alleged unfair or deceptive trade practices involving mobile broadband Internet access service providers. In the course of discussing the alleged “data throttling” at issue in the case, the en banc opinion stated: 

The Reclassification Order's explicit text and the "generally applicable presumption against retroactivity" confirm that the FTC's Section 5 authority to bring cases concerning mobile data services has been curtailed only for services rendered after the order became effective… 

… 

The FTC's power to bring enforcement lawsuits in federal court derives from the FTC Act, which authorizes the agency to sue in any case involving "any provision of law enforced by" the FTC. Before the reclassification, the FTC had the authority to pursue this suit. The prospective reclassification can hardly be viewed to retrospectively strip the FTC of that enforcement authority.

But the Ninth Circuit’s en banc opinion noted: “In early 2018, the FCC reversed its 2015 Reclassification Order and once again classified broadband internet as a non-common-carrier service.” According to Paragraph 141 of the Restoring Internet Freedom Order: “Today’s reclassification of broadband Internet access service restores the FTC’s authority to enforce any commitments made by ISPs regarding their network management practices that are included in their advertising or terms and conditions.” In other words, under the FCC’s free market-oriented, light-touch Title I-based approach to broadband Internet access services, broadband Internet service providers that include promises not to block or degrade data traffic to and from their subscribers as well as promises not to engage in unfairly discriminatory or harmful forms of paid prioritization must keep to those promises or be subject to enforcement actions.

Restoration of FTC enforcement jurisdiction over broadband Internet access services is a critical premise of the FCC’s Restoring Internet Freedom Order. Indeed, restored FTC authority is a primary reason “Why Consumers Won’t Be Left Unprotected” – as FSF President Randolph May and I explained in a January op-ed in the Washington Times. By confirming that the FTC’s Section 5 common carrier exemption is activity-based and not status based, the Ninth Circuit’s unanimous en banc decision in FTC v. AT&T Mobility effectively supports the legal basis for consumer protection established by the Restoring Internet Freedom Order.