AT&T. (Credit: John Disney/ ALM)

A federal appeals court on Monday affirmed that the Federal Trade Commission has the power to challenge AT&T Mobility's so-called data throttling of customer services, reversing an earlier ruling that threatened to curb the agency's authority to regulate the mobile phone industry.

The FTC alleged in 2014 that AT&T had misled millions of smartphone consumers by charging them for unlimited data plans while slowing down their data speeds after they reached a certain amount of data use in a billing cycle. In some cases, AT&T's throttling rendered several common phone applications, such as GPS navigation and video streaming, nearly impossible to use, according to the FTC's lawsuit.

AT&T, represented by lawyers at Kellogg, Huber, Hansen, Todd, Evans & Figel and Sidley Austin, argued that as a common carrier it was not subject to the FTC's authority. U.S. District Judge Edward Chen in California rejected that defense, ruling that the FTC Act's exemption for common carriers did not apply to activities that fall outside of common carrier services, such as data service.

Chen was later overruled, in 2016, by a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit. In an 11-0 ruling Wednesday, the Ninth Circuit overturned that 2016 panel decision. None of the three Ninth Circuit judges involved in the earlier decision were on the en banc panel.

“The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications,” Judge M. Margaret McKeown wrote. “New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company.”

Judge M. Margaret McKeown of the U.S. Courts of Appeals for the Ninth Circuit (2009) Photo by Diego M. Radzinschi/NATIONAL LAW JOURNAL

McKeown continued:

“The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement.”

Michael Kellogg, who argued for AT&T in the Ninth Circuit, was not immediately reached for comment Monday. “Today's decision on jurisdiction does not address the merits of the case. We are reviewing the opinion and continue to believe we ultimately will prevail,” AT&T said in a prepared statement.

Maureen Ohlhausen, acting Federal Trade Commission chair, said in a statement: “I welcome the Ninth Circuit's ruling as good news for consumers. It ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests including privacy protection, as well as stopping anticompetitive market behavior.”

The FTC alleged AT&T's throttling began in 2011 and affected at least 3.5 million customers. The company had stopped offering unlimited plans in 2010, but legacy customers who had signed up for the service were grandfathered and allowed to keep their plans.

According to the FTC, AT&T failed to inform those consumers of the throttling program when they renewed their plans. And when consumers canceled their plans after being throttled, they were charged early termination fees that typically cost hundreds of dollars, according to the FTC.

As the case between AT&T and the FTC played out, broadband internet service's status as a common carrier service has twisted in the winds of political change.

In 2015, the Federal Communications Commission reclassified broadband internet as a common carrier service, in a move intended to prevent companies from throttling. The FCC reversed that 2015 reclassification earlier this year under the leadership of Chairman Ajit Pai, a Republican.

In a footnote Wednesday, the Ninth Circuit said that the FCC's recent move did not render the case moot. “The 2018 order explicitly stated that it applies 'only on a prospective basis,'” McKeown wrote.

“The FTC derived its jurisdiction from the FTC Act, and neither of the FCC's Reclassification Orders applies retroactively,” McKeown said.

This post was updated with additional comment about the ruling.

The Ninth Circuit's ruling is posted below:

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