Federal Court “Throttles” AT&T’s Motion to Dismiss in “Unlimited Data” Case

AT&T appeal
Image from NBC News

A federal judge in California District Court recently issued an order denying AT&T’s motion to dismiss the FTC’s lawsuit against the company concerning its advertising and business practices for its mobile wireless data plans.  This case presented an increasingly common question concerning the dividing line between jurisdiction of the FTC and the FCC over activities of telecommunications companies.  With the order, the FTC’s case against AT&T will now move forward on the merits.

The FTC initiated its suit against AT&T in late 2014, alleging that AT&T had misled millions of its customers regarding its “unlimited data” plan.  The FTC says that AT&T promised its customers unlimited data plans while at the same time the company was reducing those customers’ data speeds through a practice known as “throttling.”  In doing so, the FTC alleges that AT&T failed to adequately disclose to its customers who purchased unlimited data plans that, once a customer uses a certain amount of data (two gigabytes, in some cases) in a given billing cycle, AT&T reduces, or “throttles,” the customer’s data speeds so that popular smartphone applications such as GPS navigation and streaming video fail to function as intended.  The FTC asserts that AT&T has been throttling data speeds for unlimited data customers since 2011, and has throttled at least 3.5 million customers a total of more than 25 million times.

However, AT&T denied the allegations, arguing its practices are not uncommon for the industry and it has been transparent with customers from the beginning.  In response to the complaint, AT&T filed a motion to dismiss the case, claiming that AT&T’s business is regulated as a common carrier under the Communications Act and therefore is exempt from FTC jurisdiction.  Unfortunately for AT&T, Judge Edward Chen disagreed, denying the communications giant’s request to dismiss the case.

According to the order:

Contrary to what AT&T argues, the common carrier exception applies only where the entity has the status of common carrier and is actually engaging in common carrier activity. When this suit was filed, AT&T’s mobile data service was not regulated as common carrier activity by the Federal Communications Commission. Once the Reclassification Order of the Federal Communications Commission (which now treats mobile data serve as common carrier activity) goes into effect, that will not deprive the FTC of any jurisdiction over past alleged misconduct as asserted in this pending action.

This means that in the court’s opinion any conduct occurring before the FCC’s reclassification is still within the realm of the FTC, and the FTC intends to fully enforce their authority regarding such past conduct, much the chagrin of AT&T.  AT&T has appealed the judge’s ruling.  During recent arguments regarding the appeal, the FTC urged the court to deny AT&T’s motion to the Ninth Circuit to certify two questions from its data throttling dispute, arguing that it’s very unlikely the appellate court would rule in the company’s favor.  In the FTC’s view, “AT&T does not dispute the rules of statutory construction followed by the court, but evidently disagrees with how the court applied them.”  The FTC believes AT&T’s disagreement with the district court’s decision is “irrelevant” under certification requirements, as is the Ninth Circuit’s lack of a controlling precedent on the precise issues the company raised.

In its appeal, AT&T requested certification of two issues: 1) whether Judge Chen’s order involves a controlling question of law over which there is substantial ground for a difference of opinion; and 2) whether an immediate appeal would bring the case to a close.  “A reversal by the Ninth Circuit would have the maximum possible material effect on the litigation’s outcome: It would conclusively end the case,” AT&T said.

The FTC countered that none of the cases the company cited in its motion to appeal address the district court’s order, and the trial court had already found those cases “distinguishable and unpersuasive” when AT&T referenced them in its motion to dismiss.  The FTC also said that AT&T had failed to show that the appeal would save the parties time and money because the Ninth Circuit would likely rule in its favor and bring the case to a close, the FTC said.  The FTC rejected AT&T’s attempt to show that the potentially significant cost of defending against the FTC’s claims justified the “extraordinary remedy” of an immediate appeal, noting that litigation is typically expensive.

The FTC said it also wouldn’t save time, claiming that the median time for merit terminations of appeals in the Ninth Circuit sits at about 33 months, meaning that AT&T’s motion could delay the case for years.  “It is the FTC’s position that the most efficient and effective way to resolve the issues presented in the instant matter — and the most expeditious way to obtain relief for the millions of consumers injured by AT&T’s unlawful throttling program — is to litigate the matter to a final order,” the agency said. “The resources the FTC expends in litigating this case are therefore worthwhile, especially given the low likelihood of reversal on appeal.”

While it remains to be seen whether the Ninth Circuit will take up AT&T’s appeal, cases in the future against mobile data service providers will likely come under the umbrella of the FCC.  On the same day that arguments were held on AT&T’s motion to dismiss, the FCC issued its Open Internet Order, which classifies mobile broadband Internet access service as common carriage service under Title II of the Communications Act.  The FCC’s order is a potential game changer as it relates to FTC jurisdiction, but for now such changes don’t seem likely to help AT&T in its fight against the FTC.

More on the FTC vs. AT&T case here.