Ninth Circuit Limits FTC’s Ability to Regulate Internet Service Providers

October 19, 2016

courtroom juryBy overturning a district court decision, a three judge panel in the Ninth Circuit substantially impaired the ability of the Federal Trade Commission (FTC) to take action against Internet service providers (ISPs) on behalf of consumers.  If this ruling is not modified, the FTC’s ability to regulate ISPs will likely be significantly reduced.

After an investigation, the FTC concluded that AT&T had unlawfully slowed broadband access for some of its customers who were exceptionally large volume data users.  The FTC ordered AT&T to stop applying this “throttling” practice.  The Commission also ordered AT&T to pay compensation to the consumers who had been affected by this practice.

Matsuura Blakeley BannerAT&T appealed the FTC action.  One of AT&T’s arguments was that the FTC did not have regulatory jurisdiction over AT&T because the company is a common carrier, regulated by the Federal Communications Commission (FCC).  The district court determined that the FTC did have regulatory authority over AT&T and that the penalties imposed by the FTC were appropriate.

AT&T then appealed the district court ruling to the Ninth Circuit.  A three judge panel concluded that the FTC does not have jurisdiction over AT&T, and the panel reversed the district court determination.  The panel agreed with AT&T’s argument that common carriers providing communications services are subject to oversight by the FCC, not the FTC.

The FTC reportedly indicated that it plans to request a re-hearing of this case by the full panel of Ninth Circuit judges.  The FTC expressed concern that this ruling would seriously undermine its ability to protect consumer interests with regard to the conduct of ISPs.

In 2015, the FCC determined that ISPs are subject to the FCC’s common carrier regulatory framework.  As a result of this FCC action and the Ninth Circuit panel’s ruling in the AT&T case, the FTC is concerned that its ability to regulate the impact of ISP conduct on consumers has been seriously threatened.

The FTC indicated that FCC action alone can not provide full protection for the interests of consumers.  For example, the FTC indicated that it has the authority to impose fines and other monetary penalties that can be paid directly consumers as compensation.  When the FCC assesses fines, that money must be directed to the federal government, not any private party.

It is important that both the FTC and the FCC remain engaged in regulatory oversight of the conduct of ISPs and other online service providers.  This ruling in the AT&T case seems to undermine significantly the ability of the FTC to play an active role protecting consumer protection in the digital marketplace.  It is worth noting that the FCC has the authority to regulate aggressively the rates and terms of service applied by communications common carriers.  AT&T and other ISPs should remain mindful of the fact that if they intend to claim the benefits of common carrier classification relative to the FTC, they should be prepared for the possibility of FCC rate and service regulation which is also part of common carrier classification.