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Federal Trade Commission v. AT&T Mobility LLC

United States Court of Appeals, Ninth Circuit

August 29, 2016

Federal Trade Commission, Plaintiff-Appellee,
v.
AT&T Mobility LLC, a limited liability company, Defendant-Appellant.

          Argued and Submitted June 17, 2016 San Francisco, California

         Appeal from the United States District Court for the Northern District of California D.C. No. 3:14-cv-04785-EMC Edward M. Chen, District Judge, Presiding

          Michael K. Kellogg (argued) and Mark C. Hansen; Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C.; David L. Anderson, Sidley Austin LLP, San Francisco, California; for Defendant-Appellant.

          Joel Marcus (argued), Director of Litigation; Matthew M. Hoffman and David L. Sieradzki, Attorneys; David C. Shonka, Acting General Counsel; Federal Trade Commission, Washington, D.C.; Evan Rose, Matthew D. Gold, and Linda K. Badger, Federal Trade Commission, San Francisco, California; for Plaintiff-Appellee.

          Before: Richard R. Clifton, and Sandra S. Ikuta, Circuit Judges, and William Q. Hayes, [*] District Judge.

         SUMMARY[**]

         Federal Trade Commission Act

         The panel reversed the district court's denial of AT&T Mobility LLC's motion to dismiss, and remanded for an entry of an order of dismissal in an action brought by the Federal Trade Commission under section 5 of the FTC Act that took issue with the adequacy of AT&T's disclosures regarding its data throttling plan, under which AT&T intentionally reduced the data speed of its customers with unlimited mobile data plans.

         Section 5 of the FTC Act contains an exemption for "common carriers subject to the Acts to regulate commerce." 15 U.S.C. § 45(a)(2). The panel held that AT&T was excluded from the coverage of section 5 of the FTC Act, and FTC's claims could not be maintained. Specifically, the panel held that, based on the language and structure of the FTC Act, the common carrier exception was a status-based exemption and that AT&T, as a common carrier, was not covered by section 5.

          OPINION

          CLIFTON, Circuit Judge.

         Through a practice referred to by the Federal Trade Commission as "data throttling, " AT&T Mobility LLC intentionally reduces the data speed of its customers with unlimited mobile data plans.[1] A throttled customer receives data at a substantially reduced speed during a given billing cycle once the customer's data usage during that billing cycle exceeds a threshold determined by AT&T. Unlimited data plan customers are throttled without regard to real-time network congestion.

         The FTC filed a complaint against AT&T under section 5 of the FTC Act, 15 U.S.C. § 45(a), taking issue with the adequacy of AT&T's disclosures regarding its data throttling program. The central issue before us is whether AT&T is covered by section 5, which exempts, among others, "common carriers subject to the Acts to regulate commerce." We conclude that AT&T is excluded from the coverage of section 5, and that the FTC's claims cannot be maintained.

         I.

         AT&T offers mobile voice service and mobile data service to its customers. Mobile data service allows customers with smartphones to access the internet using AT&T's mobile data network. Customers with mobile data service can, among other things, send and receive email, use GPS navigation, and stream videos.

         In 2007, AT&T became the exclusive service provider for the Apple iPhone in the United States. At that time, AT&T began offering iPhone customers an "unlimited" mobile data plan, allowing users access to an unlimited amount of data for a fixed monthly rate. Starting in June 2010, however, AT&T stopped offering unlimited mobile data plans to new customers. Since then, it has required new customers to select one of various "tiered" data plans, under which a customer has a set data allowance per month for a fixed monthly rate and incurs additional charges for any data usage in excess of the set data allowance. Customers with preexisting unlimited data plans were grandfathered into the new system to avoid encouraging them to switch to a different service provider.

         In July 2011, AT&T decided to begin reducing the speed at which unlimited data plan users receive data on their smartphones. Under AT&T's data throttling program, unlimited data plan customers are throttled for the remainder of a billing cycle once their data usage during that cycle exceeds a certain threshold. Although AT&T attempts to justify this program as necessary to prevent harm to the network, AT&T's throttling program is not actually tethered to real-time network congestion. Instead, customers are subject to throttling even if AT&T's network is capable of carrying the customers' data. AT&T does not regularly throttle its tiered plan customers, no matter how much data those customers use.

         The FTC contends that AT&T failed to adequately inform its customers of its data throttling program. It asserts two claims against AT&T under section 5 of the FTC Act, pursuant to which the FTC may "prevent persons, partnerships, or corporations, except . . . common carriers subject to the Acts to regulate commerce . . . from using . . . unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(2).

         In Count I, the FTC asserts that AT&T's imposition of data speed restrictions on customers with contracts "advertised as providing access to unlimited mobile data" and without terms "provid[ing] that [AT&T] may modify, diminish, or impair the service of customers who use more than a specified amount of data" is an unfair act or practice. In Count II, the FTC asserts that AT&T's failure to adequately disclose that it "imposes significant and material data speed restrictions on unlimited mobile data plan customers who use more than a fixed amount of data in a given billing cycle" is a deceptive act or practice.

         AT&T filed a motion to dismiss the FTC's Complaint, contending that it is immune from liability under section 5 because of its status as a common carrier. The FTC opposed the motion, arguing that AT&T is not exempt from liability for violations in connection with its mobile data service, a non-common carrier service, because the common carrier exemption in section 5 protects entities with the status of common carrier only to the extent that the service in question is a common carrier service.

         While the motion to dismiss was pending, the Federal Communications Commission reclassified mobile data service from a non-common carrier service to a common carrier service.[2] In response, AT&T argued to the district court that the FCC's Reclassification Order, even though prospective in application, stripped the FTC of authority to maintain its claims against AT&T, even as to past violations.[3]

         It is undisputed that AT&T is and was a "common carrier[] subject to the Acts to regulate commerce" for a substantial part of its activity, but prior to the FCC's Reclassification Order, its mobile date service was not ...


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