Appeals Court Resurrects Federal Government’s Lawsuit Over AT&T’s Old “Unlimited” Plans

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The years-long dispute between the Federal Trade Commission and AT&T over the wireless company’s old “unlimited” data plans is still not dead. A federal appeals court has zapped new life into the lawsuit, meaning there’s still hope that AT&T users who saw their data throttled despite having unlimited data plans may someday get justice.

To understand this legal spat, we need to go back a decade, to the launch of the iPhone. Originally, AT&T had the exclusive on this device, and in an effort to convince people that they would want to watch YouTube videos on their phone, they offered unlimited data plans.

After a few years, as others joined in the iPhone fun and smartphones became the norm, AT&T began to clamp down on the free-for-all data plans, by announcing that “unlimited” no longer meant what “unlimited,” but rather “unlimited, until you reach an arbitrary limit that changes every month depending on the amount of data used by all AT&T unlimited data plan subscribers.”

In other words, if AT&T decided you were in the top 5% of data hogs in any given month, it could throttle back your data speeds to the point where you might as well not have a smartphone. The company later tweaked this to set specific monthly throttling thresholds, but by then many subscribers had fled for less-confusing tiered data plans.

In 2014, the Federal Trade Commission sued AT&T, alleging that the telecom titan failed to adequately disclose to customers that this throttling could occur, and that this service slowdown could reduce data speeds by as much as 90%.

AT&T countered by arguing that the FTC can’t bring that lawsuit because the FTC Act has an explicit exception for “common carriers” that are regulated by other federal agencies. Thing is, at the time AT&T throttled unlimited data (and at the time it made this original argument), while cellphone voice service is a common carrier utility, wireless data was not yet considered a common carrier.

That didn’t happen until June 2015, when the FCC’s Open Internet Order went into effect. When those rules were put in place, AT&T was the one that sued the FCC to undo the common carrier designation for wireless data.

At first, a federal court judge shot down AT&T’s attempts to wriggle out of the lawsuit, saying that the common carrier exception only applied to instances where a company was acting as a common carrier. Since the FTC lawsuit was about how AT&T marketed and informed customers about its unlimited plans, that really didn’t have anything to do with the fact that AT&T was selling a phone service.

But AT&T persisted, and in Aug. 2016 a three-judge panel for the Ninth Circuit Court of Appeals sided with the telecom company, throwing out the FTC’s case.

That would mean that the only agency that could sue AT&T for any unfair or deceptive business practice would be the Federal Communications Commission, which would be fine, except for a few huge problems: The FCC can only bring actions against companies for actions going back one year, so it would have been impossible for it to bring this action against AT&T. Additionally, unlike the FTC, the FCC is not authorized to sue companies on consumers’ behalf, so any penalty the FCC might get from AT&T would not be paid out to affected unlimited users.

That would effectively make telecoms untouchable, argued the FTC in its petition for a rehearing before the full Ninth Circuit.

Even worse, argued the FTC, the appeals court ruling has the effect of saying that any company with a common carrier business is now fully exempt from liability under the FTC Act. So the FTC could, in theory, never sue Google because it now sells broadband service. DirecTV satellite TV service would also be sheltered, since it’s now owned by AT&T, and the same would be true for all of the Time Warner media properties that AT&T is currently acquiring.

“The panel’s ruling calls into question the FTC’s ability to protect consumers from unlawful practices by such companies in any of their lines of business,” argued the petition. “No other federal agency can fill this gap. The Federal Communications Commission can address harms related directly to telephone or internet service, but it lacks authority over other products or services, such as email and e-commerce. Other agencies have similar jurisdictional limitations. No agency has the same broad enforcement power as the FTC.”

That petition was filed in October, and yesterday the Ninth Circuit revealed in a one-page order [PDF] that it had decided to grant that rehearing before the full court. This morning, the court clarified that oral arguments would be heard during the week of Sept. 18, so this is not a matter that will be resolved any time in the immediate future.

Interestingly, while the FTC has fought tooth and nail to keep this lawsuit alive, the Commission declined our request for a comment on the rehearing.

AT&T would only say that it was aware of the decision and, “we look forward to participating in the en banc review.”

Not surprisingly, the one person who is willing to go on the record about the re-hearing is chatterbox FCC Chair Ajit Pai, who we didn’t even have to ask for comment (and who we weren’t planning on asking for comment since he’s not a party to the lawsuit). Nevertheless, Pai’s office sent out a statement shortly after the Ninth Circuit released its order.

“Today’s action by the Ninth Circuit is a big win for American consumers. Now that the court’s prior decision is no longer effective, it will be easier for the FTC to protect consumers’ online privacy,” said Pai, despite the fact that this ruling and lawsuit have nothing to do with privacy regulations, and the FTC is still hamstrung in its ability to write enforceable privacy rules.