Ninth Circuit Clarifies: FTC Common Carrier Carve-Out Is Activity Based

FTC can regulate broadband activities of common carriers like AT&T, Verizon
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A federal appeals court has ruled that the FTC does have authority over the noncommon carrier activities of common carriers, which means that it could, for example, still enforce its unfair and deceptive practices authority over Yahoo! even though it is owned by telco common carrier Verizon.

The case involved AT&T's slowing of data speeds, with AT&T arguing the FTC did not have jurisdiction over its broadband operations (this was before the reclassification of ISPs as common carriers) because the common carrier exemption for its common carrier status as a telecom provider immunized its noncommon carrier activities.

The full appeals court upheld a district court and overruled its own three-judge panel, which had found that the FTC exemption from regulating common carriers was status-based, not activity-based, meaning that the non-common carrier activities of a common carrier would also have been exempt.

That three-judge panel, in overturning the FTC's action against AT&T for throttling the speeds of unlimited data customers, last year ruled that the regulatory exemption that prevents the FTC from regulating common carriers is not confined to common carrier "activity" by an entity that has the status of a common carrier, but to noncommon carrier activity by that entity as well.

The decision helps clear up a jurisdictional issue that would have left some question about the FTC's authority to regulate broadband under the new Restoring Internet Freedom framework.

The judge writing the opinion for the full court recognized the gap that would have been created by a status-based interpretation, writing: "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."

The court did not actually rule on the panel's decision, but instead looked at the District Court decision "de novo," meaning independently and as though for the first time, and ruled the court got it right.

The FTC had challenged the Ninth Circuit three-judge panel decision, with most court watchers expecting the full court to overturn the panel, as was the case Monday.

“The Ninth Circuit’s decision is a significant win for American consumers," said FCC chair Ajit Pai. "Among other things, it reaffirms that the Federal Trade Commission will once again be able to police Internet service providers after the Restoring Internet Freedom Order takes effect. In the months and years ahead, we look forward to working closely with the FTC to ensure the protection of a free and open Internet.”

Acting FTC chair Maureen Ohlhausen said: "I welcome the Ninth Circuit’s ruling as good news for consumers. It ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests including privacy protection, as well as stopping anticompetitive market behavior.”