TMT with Mike O'Rielly - Ep 6: Biden FTC's Processes, Policies, and Impacts

In Episode 6 of “TMT with Mike O'Rielly,” released on June 27, former FCC Commissioner and Free State Foundation Adjunct Senior Fellow Michael O'Rielly discusses the Biden FTC’s processes and policies and their impact on American companies and consumers with David Grossman, the Consumer Technology Association's Vice President of Policy & Regulatory Affairs. As the FTC aggressively seeks to expand its power, this is another don't-miss episode.

FTC Initiates Privacy Rulemaking Despite Congressional Momentum: Republican Commissioners Issue Strong Dissents

At a virtual news conference last Thursday, the FTC announced the adoption of an Advance Notice of Proposed Rulemaking (ANPR) on "commercial surveillance" (that is, the use of personal information) and "lax" data security practices.

Over forceful objections from the two Republican Commissioners, and in the face of significant congressional progress on a bipartisan, bicameral federal comprehensive data privacy bill, this action by the majority initiates a "Magnuson-Moss" rulemaking pursuant to Section 18 of the FTC Act.

The ANPR:

[I]nvites comment on whether it should implement new trade regulation rules or other regulatory alternatives concerning the ways in which companies (1) collect, aggregate, protect, use, analyze, and retain consumer data, as well as (2) transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive.

It poses a total of 95 wide-reaching questions, grouped into the following broad categories:

• The extent to which personal data practices and security measures harm consumers, particularly children and teenagers;
• The appropriate way to balance costs and benefits; and
• Whether the FTC should regulate prevalent data privacy and security practices.

In just one troubling example of the ANPR's explicit bias against the prevailing notice-and-consent paradigm – a point of view that Commissioner Noah Phillips in his dissent characterizes as "a rather dystopic view of modern commerce" – question 74 asks under "which circumstances, if any, is consumer consent likely to be effective" and question 77 seeks input on "[h]ow demonstrable or substantial must consumer consent be if it is to remain a useful way of evaluating whether a commercial surveillance practice is unfair or deceptive" (emphases added).

In her Dissenting Statement, Commissioner Christine Wilson objected to the ANPR primarily on the basis of the risk it poses to the continued progress of the American Data Privacy and Protection Act (ADPPA). As I noted two weeks ago in a Perspectives from FSF Scholars, an amended version of the ADPPA on July 20, 2022, cleared the House Commerce Committee on a 53-1 vote.

Emphasizing her unwavering preference for congressional, rather than agency, action, Commissioner Wilson made plain that "[t]he momentum of ADPPA plays a significant role in [her] 'no' vote" – and that she is "gravely concerned that opponents of the bill will use the [ANPR] as an excuse to derail the ADPPA."

Commissioner Wilson did acknowledge that, at an earlier point in time, she "became willing to consider whether the Commission should undertake a Section 18 rulemaking to address privacy and data security."

However, for a litany of reasons – including "changes to the Section 18 Rules of Practice that decrease opportunities for public input and vest significant authority for the rulemaking proceedings solely with the Chair" and "Chair Khan's public statements [that] give [Commissioner Wilson] no basis to believe that she will seek to ensure that proposed rule provisions fit within the Congressionally circumscribed jurisdiction of the FTC" – the Commissioner has had an abrupt change of heart.

I documented this evolution in a series of posts to the Free State Foundation's blog.

In his Dissenting Statement, Commissioner Phillips reiterated a similarly longstanding conviction that Congress, rather than the FTC, "is where national privacy law should be enacted." In that vein, he wrote that he is "heartened to see Congress considering just such a law today" and hopes that "this Commission process does nothing to upset that consideration."

Taking issue with the ANPR's foundational terminology, Commissioner Phillips labeled the phrase "commercial surveillance" an "academic pejorative," one that is "defined so broadly (and with such foreboding) that it captures any collection or use of consumer data" – and one that "trades a serious attempt to understand business practices it would regulate for the chance to liken untold companies large and small to J. Edgar Hoover's COINTELPRO."

Expanding upon this concern, Commissioner Phillips makes the following additional points:

• The ANPR "provides no notice whatsoever of the scope and parameters of what rule or rules might follow" – thereby "undermining the public input and congressional notification processes" required by Section 18.
• It exceeds the FTC's congressionally delegated Section 5 authority over "unfair or deceptive acts or practices" and "signal[s] the majority's view that the scope of the rules passed by the unelected commissioners of an independent agency should be on par with statutes passed by elected legislators." Referencing (1) "personalized" or "targeted" advertising, and (2) consent, which he refers to as "one of the traditional bedrocks of privacy policy," he argues that the ANPR portends regulating "common business practices we have never before even asserted are illegal."
• Overstepping the limits of the FTC's jurisdiction, "[i]t seeks to recast the agency as a civil rights enforcer, contemplating policing algorithms for disparate impact without a statutory command."
• It "shortchanges data security, one area ripe for FTC rulemaking."

Critically, Commissioner Phillips highlights how the ANPR in practice could result in consumer harm: "Reducing the ability of companies to use data about consumers, which today facilitates the provision of free services, may result in higher prices – an effect that policymakers would be remiss not to consider in our current inflationary environment."

On September 8, 2022, the FTC will host a virtual public forum on the ANPR.

Comments on the ANPR will be due 60 days after its publication in the Federal Register.

Video of FSF Fireside Chat with FTC Commissioners Noah Phillips & Christine Wilson

To kick off the Free State Foundation's Thirteenth Annual Telecom Policy Conference, FSF President Randolph May moderated a Fireside Chat with FTC Commissioners Noah Phillips and Christine Wilson. Theodore Bolema, a member of the FSF Board of Academic Advisors, also participated. Policy topics included antitrust, data privacy, and Section 230 immunity for Big Tech platforms. Video of the March 19 event is now available online:

Prepared Remarks of FTC Chairman Joseph Simons at FSF's Telecom Policy Conference

The Free State Foundation's Eleventh Annual Telecom Policy Conference was on March 26. This year's conference included a keynote address by Federal Trade Commission Chairman Joseph Simons. His remarks focused on "how the FTC's two missions—competition and consumer protection—apply to the internet ecosystem."

Chairman Simons offered an overview of how the FTC can reach broadband Internet service provider behavior such as blocking, throttling, and paid prioritization under its antitrust and consumer protection jurisdiction. He also discussed the FTC's authority to address alleged deceptive and unfair privacy and security practices by ISPs. According to Chairman Simons, "the FTC will remain active in Internet commerce… we will be able to protect consumers from anticompetitive and unfair or deceptive conduct by ISPs and other firms in this fast-paced industry."

The prepared version of Chairman Simons' remarks is available at the FTC's website here.

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.