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9th Circuit Casts Doubt on Net Rules

Court’s decision could immunize edge providers from FTC, FCC consumer regulations 9/05/2016 8:00 AM Eastern
TakeAway

A recent court decision calls into question the FTC and FCC’s authority to regulate edge providers.

WASHINGTON — A new federal court ruling leaves some doubt as to which federal agency — if any — can enforce consumer protections on search engines and other edge providers, and perhaps other parts of the economy as well.

 

A panel of the 9th U.S. Circuit Court of Appeals has ruled that the Federal Trade Commission was precluded from using its consumer-protection authority to sue AT&T for not telling subscribers of its mobile broadband “unlimited” data plans that their data use was being throttled after it reached a certain threshold.

 

The Federal Communications Commission is pursuing a similar complaint against AT&T, which is not affected by the ruling.

 

But the decision has wider implications. Indeed, the FTC said it would be “virtually powerless to protect the public against newly emerging harms that reach into virtually every area of commerce.”

 

IMMUNIZING EFFECT

 

The decision could immunize the non-common carrier holdings of broadband common carriers such as AT&T and Verizon Communications — or Google, due to its ownership of Google Fiber — from FTC consumer-protection regulations.

 

If those non-carrier holdings are so-called edge providers as defined in the FCC’s Open Internet order, such as Verizon’s Yahoo unit, the ruling means the FCC cannot regulate them, either — FCC chairman Tom Wheeler has said the agency lacks the authority to regulate edge providers.

 

The FCC’s Open Internet order defines edge providers as “any individual or entity that provides any content, application or service over the Internet, and any individual or entity that provides a device used for accessing any content, application or service over the Internet.”

 

AT&T had said that since it was a common carrier, and the FTC is exempt from pursuing false and deceptive claims against common carriers, that meant that its non-common carrier mobile broadband business also falls under the exemption. That was billed as the “status” definition of the exemption.

 

The FTC argues that the exemption does not apply to non-common carrier activities by common carriers, in this case mobile broadband. (This was before the FCC classified mobile broadband as a common-carrier service in its Open Internet order.) That was called the “activities” definition.

 

If the court ruled that the common-carrier exemption applied to all of a company’s activities — common carrier or not — it “would undermine the purposes of the FTC Act by leaving consumers unprotected in major areas of the economy,” the FTC warned.

 

The FCC assumed regulation of broadband privacy when it reclassified ISPs as common carriers last year, but it has yet to come up with new rules.

 

In the interim, the FCC and FTC entered into a memorandum of understanding to divvy up oversight, assuming that “the scope of the common carrier exemption in the FTC Act does not preclude the FTC from addressing non-common carrier activity engaged in by common carriers.”

 

But the 9th Circuit said it does preclude the FTC from addressing them. That leaves a big gap in consumer protections, the FTC has said.

 

“AT&T engages in a wide range of activities, only some of them common carriage,” the FTC had told the 9th Circuit. “In addition to mobile voice and data service, it sells consumer goods and services such as smartphones, tablet computers, digital video recorders, GPS devices, fitness trackers, cellphone accessories, home automation and security systems.”

 

The FTC said AT&T’s reading of the law, and now the 9th Circuit’s, would leave those and other services unprotected.

 

Beyond that, it could provide a strategy for immunizing companies from FTC enforcement “simply by providing some common- carrier service.”

 

LOOPHOLE FOR GOOGLE?

 

So, does that mean the search-engine business of Google — because it provides a common-carrier service in Google Fiber — could be immunized from privacy regulations and consumer protections?

 

The FTC seems to think that is definitely in play now that the FCC has reclassified ISPs as common carriers. “[A] broad range of companies that do not provide traditional common-carrier service will now be able to claim common carrier status,” it told the court, adding: “[E] merging broadband providers such as Google … may collect vast amounts of consumer data with the corresponding possibility of harming privacy interests.”

 

Cowen Washington Research Group analyst Paul Gallant agreed: “This is clearly a broad and encouraging implication for Google that would seemingly enable other companies like Facebook, Amazon and Netflix to acquire a small broadband provider simply to escape all FTC privacy regulation,” Gallant said in a note to clients last week.

 

The FCC had no comment, saying its attorneys were still vetting the decision at press time.

 

“We are disappointed with the ruling and are considering our options for moving forward,” the FTC said in a statement.

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