• by Wendy Davis  @wendyndavis, September 19, 2017

Judges on the 9th Circuit Court of Appeals Tuesday questioned lawyers for both AT&T and the Federal Trade Commission over whether the FTC has the authority to prosecute the telecom for allegedly throttling customers with unlimited wireless data.

Last year, a three-judge panel of the 9th Circuit Court of Appeals dismissed the FTC's lawsuit against AT&T. Those judges said the Federal Trade Commission Act, which sets out the agency's authority, exempts common carriers from enforcement actions -- even when the complaint centers on a non-common carrier service.

Tuesday, a larger group of judges from the 9th Circuit re-heard the case. At that hearing, Circuit Judge Alex Kozinski pressed AT&T's lawyer, Michael Kellogg, over how far the company's potential immunity from FTC enforcement extends.

He asked the attorney to consider a scenario in which a company like Procter & Gamble purchases a common carrier specifically in order to avoid regulation by the FTC.

"Do I say bye-bye FTC?" Kozinski asked.

Kellogg said that in that situation, a different agency -- the Federal Communications Commission -- could require Procter & Gamble to run its common carrier business as a separate subsidiary.

But the FTC's lawyer, Joel Marcus, suggested that while the FCC may have the authority to require telecoms to create new subsidiaries, it doesn't necessarily have to do so.

"It depends on the FCC's willingness to do this," Marcus told the judges.

The dispute between the FTC and AT&T dates to October 2014, when the FTC alleged that the wireless carrier duped more than 3.5 million people by selling them unlimited data plans, but slowing their connections after they exceeded monthly allotments ranging from 3 GB to 5 GB.

AT&T argued that the lawsuit should be dismissed on the grounds that the FTC lacks authority to prosecute common carriers.

A trial judge rejected AT&T's argument, noting that mobile broadband wasn't considered a common carrier service until 2015, when the FCC issued its net neutrality order. (That order complicated the legal issues in the case by reclassifying broadband as a utility service and imposing some common carrier rules on providers; in a further complication, the FCC now appears poised to reverse the 2015 order.)

Last year, a three-judge panel of the 9th Circuit reversed the trial judge. The appellate judges suggested in their opinion that the FTC lacks authority over AT&T for all purposes, due to AT&T's longstanding role as a telephone carrier. The judges said that whether the FTC had jurisdiction depended solely on companies' "status" as common carriers, and not on whether the agency's complaint concerned a common-carrier activity.

Many observers interpreted that ruling as effectively depriving the FTC of authority to police the privacy practices of broadband providers.

The FTC then asked the court to reconsider its ruling. Consumer advocates, some lawmakers and other policymakers including the FCC backed that request. In a rare move, Charter, Comcast, Cox and Verizon also sided against AT&T. The companies recently argued to the 9th Circuit that Internet service providers like themselves should be subject to the FTC's authority.

"If the FTC is divested of jurisdiction over certain non-common carriage activities, it is likely that a variety of federal, state, and local government agencies that lack the appropriate reach, perspective, and experience in consumer protection matters will attempt to fill the perceived 'regulatory gaps,' thereby creating a patchwork of unreasonable, duplicative, and inconsistent rules," the companies wrote.

During Tuesday's hearing, judges asked attorneys whether the earlier ruling created a "regulatory gap" -- meaning a situation where no agency appears to have the ability to prosecute certain companies for deceiving consumers.

The FTC's Marcus answered in the affirmative. "I don't see how you can escape a regulatory gap," he said.