keepcalmLast week, a federal judge in the Northern District of California denied AT&T’s motion to dismiss the FTC’s lawsuit against the company concerning its advertising and business practices for its mobile wireless data plans.

As we noted last fall, the FTC accused AT&T of misleading millions of its customers by marketing “unlimited” data plans, but then “throttling,” or reducing data speeds, for unlimited plan customers after they used a certain amount of data in a given billing cycle.  As a result of the throttling, customers’ smartphone applications, such as GPS, would not function as they would under higher internet speeds.  The FTC asserted that AT&T had been throttling data speeds for its unlimited data customers since 2011, and that it has throttled at least 3.5 million customers a total of more than 25 million times. 

AT&T has not only defended the merits of its conduct – arguing that it temporarily reduces data speeds for heavy users (and is transparent when doing so) in order to preserve its network’s quality for everyone else – but also challenged the FTC’s ability to regulate AT&T entirely.   AT&T filed a motion to dismiss, claiming that it is exempt from FTC jurisdiction because it is regulated as a common carrier under the Communications Act.  The district court judge curbed the argument, finding that the common carrier exemption applies only where the entity has both the status of a common carrier and actually is engaging in common carrier activity.

AT&T had argued that its status as a common carrier, rather than the conduct in which it engages, should be determinative for assessing the FTC’s jurisdictional reach.  Specifically, AT&T argued that it is a common carrier for mobile voice services (even if it also provides non-common carriage services such as mobile data), and that it is subject to FCC regulation under the Communications Act for both its common carriage services (mobile voice) and its non-common carriage services (mobile data).  The FTC countered that an entity’s exempt status, by itself, is not controlling.  Rather, one must look at the activity in question and allow the FTC to regulate the non-exempt conduct of a common carrier (meaning, in this case, AT&T’s conduct regarding its mobile data services).  The court sided with the FTC on this issue, and held that an entity must have both an exempt status and be engaged in activity that was intended to be exempt from the FTC’s reach.

Interestingly, the FCC issued an Open Internet Order on March 12, which classified mobile broadband internet access service as common carriage service under the Communications Act, and it imposed rules on throttling that would apply to AT&T.  In its oral argument – held the same day the Open Internet Order was issued – AT&T argued that once the new classification takes effect, the FTC will no longer have jurisdiction.  The court cut this argument off, finding that the Order did not prevent the FTC from pursuing past actions under its jurisdiction before the change in classification.

The judge’s ruling should be of interest not only to telecommunications companies, but to other organizations that generally are considered exempt from FTC jurisdiction such as banks, savings and loan institutions, and air carriers.  Non-profit corporations that have been granted 501(c)(3) status by the IRS, in particular, should pay heed to this decision.  Such non-profits may find that their fundraising and solicitation activities may attract FTC interest under certain circumstances, even if the FTC typically takes the position that non-profits are not engaged in “commerce” and are thus beyond its jurisdiction.