Federal Court Throws Out Government Lawsuit Over AT&T Unlimited Data Plans

The Federal Trade Commission (FTC) filed the suit two years ago due to AT&T's marketing disclosures

Federal Court Throws Out Government Lawsuit Over AT&T Unlimited Data Plans
Image: Pixabay
August 30, 2016

A federal appeals court has thrown out a lawsuit filed against AT&T by the Federal Trade Commission (FTC) over the telecommunications company's marketing practices.

The FTC first filed the suit almost two years ago. AT&T had offered unlimited data plans in an effort to attract customers to the newly-launched iPhone, for which it was the exclusive carrier. A few years passed and other carriers began offering the iPhone as well as other smartphones, so AT&T stopped offering new unlimited plans.

However, it also informed existing customers that they would begin to see their data connections slow significantly upon using a certain amount of data per month. Upon reaching this data threshold, some customers were unable to use the data service at all until the start of the next month's billing cycle.

The FTC alleged that AT&T had failed to properly disclose the slowed-data program, as well as its potential consequences, to affected consumers. The agency claims that this violated Section 5 of the FTC Act, which prohibits business practices that are deceptive or unfair.

The problem is that the FTC Act also includes a "common carrier" stipulation making certain businesses exempt, including landline voice services. In 2015, the Open Internet Order reclassified wireless phone and data services for inclusion as part of the "common carrier" exemption.

AT&T claimed that the fact that its cell service included voice calling ought to shield it under the common carrier exemption, and as such, only the Federal Communications Commission (FCC) could bring this action against it. The FTC responded that AT&T had not been considered a common carrier at the time it allegedly violated the FTC Act and that the exemption can only be applied when such a carrier is "actually engaging in common carrier activity."

"In other words," says Consumerist, "because the FTC lawsuit is about a marketing disclosure and has nothing to do with whether or not throttling is allowed or fair to customers, the FTC was the correct agency to bring the action."

The District Court agreed at the time. However, AT&T appealed to the Ninth Circuit court. It argued that it was protected under the common carrier exemption even against alleged violations that are completely unrelated to the activities carried out by a common carrier.

The Ninth Circuit has agreed and ruled in favor of AT&T. It referred in its decision to the language used in the FTC Act, which makes generic, non-specific kinds of institutions such as "banks" and "Federal credit unions" exempt without requiring them to be actively carrying out the activity of banking.

The FTC disagrees with the ruling and is "considering [its] options for moving forward," according to a Commission representative. The agency can appeal the decision either to the full Ninth Circuit court or to the Supreme Court (SCOTUS).

"Every major wireless provider now includes forced arbitration clauses in their terms of service, meaning customers no longer have the right to file lawsuits or join in class actions against their phone company," says Consumerist. "If the Ninth Circuit ruling stands — or is upheld by SCOTUS — it could take away one of the few remaining ways to hold telephone companies accountable when they deceive a large number of American consumers."