High stakes in obscure case
Ruling in FTC vs. AT&T could provide a way for firms to evade U.S. oversight.
There’s a huge court case going on whose outcome is likely to have enormous repercussions for online privacy, net neutrality and the broader economy.
For months, policymakers have been struggling with the implications of this case, FTC vs. AT&T, in part because it overturned roughly a century of established legal practice — and, analysts say, because it appeared to open a tremendous loophole that businesses might use to evade federal oversight almost completely.
This month, the federal appeals court responsible for the ruling agreed to rehear the case, potentially opening the door to a different result. Here’s what you need to know.
In August, the U.S. Court of Appeals for the 9th Circuit dealt the Federal Trade Commission a major blow — calling into question one of the consumer protection agency’s most important powers. Over the course of 21 pages, the court said the FTC should be banned from regulating a company if even a small part of that firm’s business is regulated by the Federal Communications Commission as a telecom service, otherwise known as a “common carrier.”
This was a major departure from the previous norm, said Harold Feld, a senior vice president at the consumer group Public Knowledge.
“It was huge because it was totally unexpected,” Feld said. “Nobody’s ever ruled that way before.”
The FTC is one of America’s foremost law enforcement agencies. In the tech sector alone, it has investigated or filed lawsuits against companies such as Apple, Amazon and Google. It has returned millions, if not billions, of dollars to Americans after moving to stop scams and fraudsters of all stripes. But it can go after companies only if they’re within its jurisdiction.
August’s ruling effectively shrank the FTC’s jurisdiction by placing a whole class of companies off limits. What’s more, it gave businesses everywhere a massive incentive to try to gain entry into that class, thus wriggling out of FTC oversight. And it wasn’t as if the FCC could pick up the slack, either; by law, the agency may regulate common carriers only to the extent that they are engaged in providing common-carrier services. Any other parts of a common carrier’s business is off limits to the FCC.
The result, legal experts say, was a new, gaping loophole in regulatory coverage that nobody anticipated.
“This decision raised the question [of] whether any company with a common carrier business could escape FTC enforcement for all other aspects of its business,” said Robin Campbell, a lawyer at Squire Patton Boggs.
This is why FTC vs. AT&T is such a big deal. Under the August ruling, virtually any company in any industry seeking lighter regulation could try to claim common carrier status to exempt the rest of its business from FTC and FCC oversight.
“Facebook could buy some dinky little telephone company, and then become totally exempt from the Federal Trade Commission,” Feld said. Replace “Facebook” with the name of any other company, he said, and you begin to see how significant this gets.
The court’s decision this month to rehear the case happens to nullify the ruling, so the loophole is temporarily closed. But it could easily be reopened if the court comes to the same conclusion, analysts say. Other possibilities include reversing the court’s prior position entirely, or perhaps coming down somewhere in the middle.
AT&T said in a statement that it looked forward to participating in the rehearing.
The outcome of the case will affect more than the FTC: It may also lend momentum to the FCC’s effort to repeal its own net neutrality rules.
FCC Chairman Ajit Pai has argued that the FTC, not the FCC, should be responsible for policing Internet service providers. Right now, the FTC has no power over Internet service providers, because the net neutrality rules consider all those providers to be common carriers.
Permanently undoing the 9th Circuit’s August ruling would mean giving the FTC the ability once again to go after the parts of an Internet service provider’s business that aren’t commoncarrier-related.