Ninth Circuit Upholds FTC Authority Over IoT-Related Services

On February 26, 2018, an en banc panel of the United States Court of Appeals for the Ninth Circuit upheld Federal Trade Commission (FTC) authority to regulate non-telephone activities of mobile operators and other common carriers.  Common carriers should be mindful of the ruling’s implications, including those related to emerging IoT services.

The Case

In October 2014, the FTC filed a complaint alleging that a mobile operator engaged in unfair or deceptive trade practices in violation of Section 5 of the FTC Act.  The FTC claimed that although the operator advertised “unlimited” data plans, the operator began reducing data speeds after customers crossed a certain usage milestone.  The FTC charged that the operator failed to adequately disclose this policy to consumers.

In its motion to dismiss, the operator argued that it was exempt from FTC jurisdiction because it qualified as a “common carrier.”  Section 5 of the FTC Act gives the agency enforcement authority over “unfair or deceptive acts or practices,” but exempts “common carriers subject to the Acts to regulate commerce.”  The motion was denied, and the Ninth Circuit granted the company’s petition for interlocutory review.  In 2016, a three-judge panel “conclude[d], based on the language and structure of the FTC Act, that the common carrier exception is a status-based exemption” and that as a common carrier, the operator was not covered by Section 5 of the Act.

The Ninth Circuit granted rehearing en banc and reversed the three-judge panel’s decision, reinstating the district court’s denial of the operator’s motion to dismiss.  The court found that immunity from the FTC Act attaches only when a company engages in common-carrier services, reasoning that “the exemption in Section 5 of the FTC Act… bars the FTC from regulating ‘common carriers’ only to the extent that they engage in common-carriage activity.  By extension, this interpretation means that the FTC may regulate common carriers’ non-common- carriage activities.”  The court found that this interpretation is consistent with the FTC Act’s text; courts’ interpretations of “common carrier” when the statute was passed in 1914; the expertise of the FTC and Federal Communications Commission (FCC); and legislative history.

As an interlocutory appeal, the case was not an adjudication on the underlying conduct, but rather the FTC’s jurisdiction over non-telephone activities of mobile operators.  The operator now has the option to appeal to the Supreme Court or return to the district court to argue the case on the merits—i.e., whether disclosures were adequate.

Takeaways

The decision affirms the FTC's authority to regulate broadband providers even when those providers offer separate common carrier services, such as landline or mobile phone service.  While the FCC has exclusive jurisdiction over common-carrier “telecommunications services,” it shares jurisdiction over non-telecommunications services with the FTC.  Companies should thus consider the FTC’s Section 5 authority when operating non-common-carrier services, including those related to IoT and other emerging technologies.