The plan by the Federal Communications Commission to eliminate its net-neutrality rules next week is expected to hand a major victory to Internet service providers. But any day now, a federal court is expected to weigh in on a case that could dramatically expand the scope of that deregulation — potentially giving the industry an even bigger win and leaving the government less prepared to field net-neutrality grievances in the future, consumer groups say.
The case involves AT&T and one of the nation's top consumer protection agencies, the Federal Trade Commission. At stake is the FTC's ability to prosecute companies that act in unfair or deceptive ways.
The litigation is significant as the FCC prepares to transfer more responsibility to the FTC for handling net-neutrality complaints. (Net neutrality is the principle that Internet providers should not be able to speed up some websites while slowing down others, particularly in exchange for money — a tactic industry critics say could hurt innovation and prevent the growth of start-ups.) If AT&T gets its way in the case, the FTC's ability to pursue misbehaving companies — over net-neutrality issues or otherwise — may be sharply curtailed.
The FTC has the power to sue misbehaving companies that mislead or lie to the public. But that power comes with an exception: It doesn't extend to a special class of businesses that are known as “common carriers.” This group includes not just telecom companies but also oil and gas pipelines, as well as freight and cruise liners. By order of Congress, the FTC is not allowed to take enforcement actions against these types of firms.
Thus far, the common carrier exemption has applied to a specific slice of the economy. But the case before the U.S. Court of Appeals for the 9th Circuit, FTC v. AT&T Mobility, could vastly expand the number of companies that qualify for the exemption. In an earlier decision in the lawsuit, a federal judge effectively said that any company that runs a telecom subsidiary is considered a common carrier. Previously, only the subsidiary would have been considered a common carrier — not the larger corporate entity. The case is being reheard, and analysts say a decision could come at any time.
The opinion last year from Judge Richard Clifton surprised many antitrust and telecom experts, in part because it could have important ramifications for net neutrality. A company that provides Internet access, such as AT&T, could seek an exemption from FTC net-neutrality enforcement by pointing to its voice business and claiming common carrier status under the ruling. At the same time, the ruling could limit AT&T's net-neutrality liability under the FCC, because the repeal of the net-neutrality rules would mean the FCC would no longer recognize AT&T's broadband business as one that can be regulated like a telecommunications carrier.
In that scenario, neither the FCC nor the FTC would offer consumers robust protections from potential net-neutrality abuses, consumer groups say. “A vote to approve the [FCC's net-neutrality plan], followed by a decision favorable to AT&T Mobility by the Ninth Circuit, would therefore create a 'regulatory gap' that would leave consumers utterly unprotected,” Public Knowledge said in a letter this week asking the FCC to delay its vote.
The FCC responded to the letter by saying the vote will proceed as planned, but it did not address the issue of the potential regulatory gap. “This is just evidence that supporters of heavy-handed Internet regulations are becoming more desperate by the day as their effort to defeat Chairman [Ajit] Pai's plan to restore Internet freedom has stalled,” the agency said in a statement Monday to Ars Technica.
Some antitrust experts say the consequences of a ruling against the FTC could go far beyond net neutrality, opening the door to many more companies trying to escape FTC oversight by claiming they are common carriers.
“Companies whose common carrier activities represent only a minuscule portion of their business could bootstrap that status into an exemption from FTC oversight of even non-common carrier activities,” said Robert Cooper, an antitrust lawyer at the firm Boies Schiller Flexner.
Under Clifton's ruling, Google parent company Alphabet could theoretically claim to be a common carrier because one of its many subsidiaries is Google Fiber, a small voice and Internet access provider. Hence “every smart company” that could afford it would try to take advantage of the loophole by buying or launching a small telecom company, said David Vladeck, a law professor at Georgetown University and a former director of the FTC's consumer protection bureau.
“The Ninth Circuit opinion threatens to carve out an enormous swath of the economy from FTC oversight,” Vladeck said. “Google's currently under two FTC consent decrees. Who knows whether those decrees would stand.”
Some analysts say the appellate court is unlikely to uphold Clifton's ruling precisely because of the potential for staggering consequences for the U.S. economy. But even if the court did uphold the decision, the analyst say, Congress could step in to address the issue.
“The legislative fix here could not be simpler: It would be a one-page bill to reaffirm the position taken by every FTC chairman and commissioner of either party for decades,” said Berin Szoka, president of the think tank TechFreedom.
The FTC and AT&T declined to comment on the case.
