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Ninth Circuit Throws Wrench into Jurisdictional Boundary Between FCC and FTC

To little fanfare, the Ninth Circuit Court of Appeals issued an opinion Monday morning in FTC v. AT&T Mobility. The case has important, if murky, implications for the future jurisdictional lines between the Federal Trade Commission (FTC) and Federal Communications Commission (FCC), opening some level of doubt as to which body will be responsible for protecting consumers and competition for a fairly large swath of the tech and telecom industries. While some reactions were overblown, just how far the fallout spreads is not clear. Regardless, the case warrants attention from policymakers on Capitol Hill, at the FCC, and elsewhere.

Back in 2014, the FTC brought an enforcement action against AT&T, suing the company for misleading customers about rate limiting or “throttling” of grandfathered unlimited data plans. AT&T defended itself by essentially saying, “Hey FTC, you don’t regulate us, the FCC regulates us,” pointing to what is called the “common carrier exemption” within section 5 of the FTC Act, which says that the FTC does not have jurisdiction over common carriers.

The question for the Ninth Circuit Court boiled down to whether the FTC common carrier exemption is “status-based” (triggered simply by virtue of the fact that a company is a common carrier) or “activity-based” (triggered only when a firm is engaging in common carrier activities).

The holding of the case seems simple enough. In the court’s words: “The common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers. Those entities are not covered by section 5 even as to non-common carrier activities.” So the answer is status-based.

Had this case gone the other way, the FTC could have continued its innovation-friendly oversight of non-common carrier services. By allowing flexibility for industry to develop best practices within these guidelines, and stepping in ex post where problems develop, the FTC does not have to predict the direction technological advancements or changes in business practices will take us. When it comes to privacy, the FCC could and should leave broadband privacy to the FTC, but that seems unlikely if not impossible under this case. The role of the FTC could diminish if the Ninth Circuit’s thinking is followed.

But the exact scope of the decision is far from clear. In fact, once you dig in, the logic of the case presents something of a hall of mirrors. The AT&T opinion relies on the plain language of the common carrier exemption in 15 U.S.C. § 45(a)(2), which empowers the FTC to “prevent persons, partnerships, or corporations, except … common carriers subject to the Acts to regulate commerce … from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.”

In the panel’s view, if a company is a common carrier “subject to” the Communications Act (or other statutes written for other common carriers like banks or railroads), your inquiry is done, the exemption is triggered, and the FTC is barred from bringing section 5 enforcement actions against that company. To the Ninth Circuit panel, just being “subject” to the act is enough. One can argue about legal interpretation and statutory construction until blue in the face; suffice it to say this is one permissible reading among many.

If we follow the logic of the Ninth Circuit, it seems that non-common carrier services offered by broadband providers would be pulled out of the FTC’s section 5 authority. AOL and Yahoo under Verizon are being bandied about as examples. The rub is that “edge” services the FCC proclaims no interest in regulating have presumably lost FTC oversight under this decision.

The odds of this case actually resulting in a real gap in consumer protection coverage are slim to none though. Some of the initial analysis of this case was an overreaction, and the notion that companies could “wriggle out” of section 5 oversight simply by purchasing a small common carrier is absurd. Claims like those of Jeff Chester at Center for Digital Democracy, who said “[t]he decision will enable a company like Google … to engage in unfair marketing and data-gathering practices without having to worry about possible FTC consequences,” are way overblown.

The opinion itself acknowledges limits to its interpretation. When distinguishing AT&T from prior cases, the panel noted that “AT&T’s status as a common carrier is not based on its acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue,” but where that line gets drawn is entirely unclear. But this line of reasoning would almost certainly prevent some of the stranger implications of the Ninth Circuit’s reasoning, such as the FTC losing all section 5 authority over companies like Alphabet because of their fiber and mobile products.

An en banc re-hearing or other courts could also easily go one step further and examine how the Communications Act itself defines common carriers. The Communications Act gives a notoriously circular definition of common carriers in § 153(11), clarifying that a “common carrier … means any person engaged as a common carrier … .” Not the most elucidating definition, but here being a common carrier is clearly grounded in the activity engaged in under the Communications Act. Elsewhere the Act makes clear telecommunications carriers are only subject to Title II insofar as they are engaged in common carrier activities. So what it takes to be subject to the Communications Act for purposes of the FTC common carrier exemption (status-based) and what it takes to be a common carrier under the FCC’s Communications Act itself (activity-based) are two different things.

But wherever that line between a status-based common carrier and its “core activities” ends up, this mess is a lot bigger as a result of the FCC’s decision to classify broadband as a common carrier. Even if the opinion is distinguishable by arguing the common carrier functions are not “core activities” of the entity eyed by the FTC, broadband access service is today, and hopefully will be going forward, the “core activity” of more companies than legacy voice communications.

The Title II classification of broadband was a significant disruption to a complicated system, a system that was built for years around the assumption broadband was a Title I information service. With the Open Internet Order, the FCC pulled the Internet out of a lighter-touch regulatory system, into a more rigid regulatory framework. The old regulatory structure shared many of the Internet’s characteristics: flexibility, adaptability, and responsiveness to change. The move towards antitrust-informed oversight under Title I would have been akin to the “rough consensus and running code” of the Internet.

Title II, on the other hand, comes with years of historical baggage, having been tightly wound through years of FCC rulemakings and court precedents. Unpredictable disruptions like this case have much bigger implications as a result and are more difficult to adapt to.

The messier entailments of this case will be cleaned up one way or another, but it provides a moment to slow down and consider the way we design our regulatory structure for some of the most important sectors of our economy.

First of all, this opinion significantly heightens the need for the FCC to harmonize its approach with the FTC. The FCC appears to be heading down the path of creating new regulatory silos, having proposed heightened privacy regulations for one particular sector of the Internet economy—broadband providers. The FCC would be wise to seek another round of comments considering the real possibility the Ninth Circuit panel’s thinking may lead to expanded, arbitrary bifurcation in treatment of very similar services.

But most importantly, Congress needs to address the common carrier exemption, if not a broader reworking of jurisdictional lines. This case highlights how very similar businesses could end up facing very different sets of rules on the Internet if the FCC pursues its regulatory siloing, creating unfair disadvantages for some companies and unnecessary government interference in the market. Title II is an improvisation with an outdated law; an update to the Communications Act would help immensely.

Congress should eliminate this conflict to make the regulatory process more efficient, better protect consumers, and create a level playing field. Specifically, Congress should eliminate the common carrier exemption in the FTC Act so that the FTC can continue its historic oversight of ISPs and provide clear and consistent consumer protection rules for all companies involved in the Internet ecosystem. However, Congress should not make this change unless it also makes clear that the FCC is not authorized to engage in rulemaking in areas where the FTC has jurisdiction. By eliminating these regulatory conflicts and overlapping jurisdictions, Congress can streamline and modernize oversight of an important part of the U.S. economy.

In the meantime, let’s hope an en banc hearing, other Circuit courts, or the Supreme Court give us a reasonable interpretation with less bad policy implications.

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