Court Throws Out Federal Government’s Lawsuit Over AT&T “Unlimited” Data Plans

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Nearly two years ago, the Federal Trade Commission sued AT&T for allegedly misleading wireless customers by charging them for “unlimited” data plans while simultaneously throttling their cellular connection speeds when they passed certain monthly thresholds. AT&T failed in 2015 to get the case dismissed in District Court, but yesterday succeeded in convincing a federal appeals court to throw out the government’s complaint.

For those who don’t remember the throttling saga, here’s a quick refresher: When the iPhone launched, AT&T was the exclusive carrier in the U.S., and the company marketed unlimited data plans as a way to convince people to try out these new-fangled “smart” phones.

But after a couple of years, as smartphones became the norm and other carriers also started offering the iPhone, AT&T ceased offering new unlimited plans. Meanwhile, existing customers with these all-you-can-download plans were told they now faced a new limit: After reaching a certain monthly threshold their connections to AT&T’s cellular data network would be significantly slowed; in some cases effectively rendering the service useless until full access was restored at the start of the next billing cycle.

The FTC lawsuit involves only AT&T’s alleged failure to adequately disclose the throttling program to — and the possible impact it could have on — affected customers. The Commission contends that this shortcoming is a violation of Section 5 of the FTC Act, which prohibits unfair or deceptive business practices.

The catch is that this law also includes a “common carrier” exemption for certain businesses, including landline voice service. The 2015 Open Internet Order (better known as Net Neutrality 2.0) recategorized wireless phone and data services so that they too came under the common carrier umbrella.

AT&T argued — at the same time it was arguing against reclassification of wireless service — that it should be shielded by this common carrier exemption by the mere fact that its cell service included voice calling. Only the Federal Communications Commission could bring this sort of action against a common carrier, claimed AT&T.

The FTC countered, and the District Court agreed, that the alleged violations occurred when wireless service was not considered a common carrier, and that this exemption only applies when a common carrier is “actually engaging in common carrier activity.”

In other words, because the FTC lawsuit is about a marketing disclosure and has nothing to do with whether or not throttling is allowed or fair to customers, the FTC was the correct agency to bring the action.

But AT&T was undeterred by this lower-court loss, and appealed to the Ninth Circuit, arguing that the common carrier exemption shielded the company from the FTC Act, even for alleged violations that have nothing to do with the activity of being a common carrier.

Yesterday, the Ninth Circuit agreed with AT&T, ruling [PDF] that the exemption is status-based, as opposed to activity-based.

The court points to the language of the FTC Act, which confers this exemption on generic types of institutions like “banks,” and “Federal credit unions,” without qualification that these sorts of companies must be involved in the activity of banking to enjoy the protection.

Because it determined that AT&T is automatically shielded from Section 5 complaints by this common carrier exemption, the appeals panel does not even delve into the issue of whether or not the FCC’s recent reclassification of wireless service — or the fact that the alleged violations occurred before that change — has any bearing on the case.

A rep for AT&T tells Consumerist the company is pleased with the decision.

Meanwhile, the FTC is not exactly thrilled by the Ninth Circuit’s conclusions.

“We are disappointed with the ruling and are considering our options for moving forward,” a rep for the Commission tells Consumerist.

Those options include appealing the ruling to either the full Ninth Circuit or to the U.S. Supreme Court.

An appeal seems likely, given the potential precedent set by yesterday’s ruling. Unlike the financial institutions that are included in the FTC Act exemption, telephone companies don’t have a regulator that can hold them responsible for misleading marketing and unfair practices the way the FTC can.

The law would allow for the FCC to bring actions against AT&T for situations like those described in the FTC’s complaint. In fact, in June 2015 the FCC proposed a penalty of up to $100 million against AT&T over its throttling policy.

However, as the FTC noted in its response to AT&T’s initial appeal, “The FCC is not authorized to seek refunds for injured consumers, and its enforcement authority is limited to conduct going back one year.” Thus, if the FCC is successful in collecting that penalty from AT&T, the money will not be paid out as refunds to customers.

This is why the FTC and FCC have partnered in the past on actions involving bill-cramming — the practice of allowing third parties to place questionable charges for additional services on customers’ phone bills. The FTC has the authority to seek redress for consumers, while the FCC has the authority to seek penalties against the telecom providers.

Every major wireless provider now includes forced arbitration clauses in their terms of service, meaning customers no longer have the right to file lawsuits or join in class actions against their phone company. If the Ninth Circuit ruling stands — or is upheld by SCOTUS — it could take away one of the few remaining ways to hold telephone companies accountable when they deceive a large number of American consumers.