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Appeals Court Blasts Big Deregulatory Hole between FCC & FTC Jurisdictions

FCC and FTC meet the law of unintended consequences.

A Ninth Circuit Court decision overturned an FTC enforcement action against AT&T for “throttling” broadband data speeds by definitively ruling that the FTC did not have any legal jurisdiction over AT&T (and other common carriers) because of the explicit common carrier exemption in the FTC’s core Section 5 legal authority.

The Court concluded: “The common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers.  Those entities are not covered by section 5 even as to non-common carrier activities.  Because AT&T was a common carrier, it cannot be liable for the violations alleged by the FTC. [Bold added.]

This is the exact opposite of what the FTC and FCC thought was legal reality months before the FCC reclassified broadband as a Title II utility in March 2015. That’s because they agreed in their 2014 “FCC-FTC Consumer Protection Memorandum of Understanding:” that “The agencies express their belief that the scope of the common carrier exemption in the FTC Act does not preclude the FTC from addressing non-common carrier activities engaged in by common carriers.” [Bold added.]

Instead of the FCC and FTC worrying about how to “avoid duplicative, redundant, or inconsistent oversight in these areas,” they now have to worry about the unexpected gaping hole in consumer protection authority that the FCC’s and FTC’s overreach actions created. Now there is a haphazard range of services and situations, where consumers now are not protected by either the FCC or the FTC.

Simply, a pillar foundation of the FCC’s Title II reclassification decision was wrong – the part that was supposed to improve consumer protection.

What does it mean that this Appeals Court decision definitively determined that the expected FCC-FTC joint consumer protection backstop is now a glaring FCC-FTC consumer protection gap?

Consider some of the many big unintended consequences here.

FCC AllVid/Set-Top Box Rules: Apparently the FCC’s main plan to plug the FCC’s gap in its own consumer protection authority was to rely on the FTC’s Section 5 unfair and deceptive practices authority to backstop and protect consumers’ OTT video viewing privacy and to fully protect video programmers’ copyright, contracts, and licenses from third party abuse in the FCC’s proposed Set-Top Box rulemaking.

However, that essential FTC gap-filling authority no longer exists. This is a new big unexpected problem.

Without Congress and new legislation, the FCC does not have sufficient legal enforcement authority to protect consumers or intellectual property as it has promised to do in promoting set-top box competition. This definitive court outcome should push the FCC to drop its original AllVid approach, to be more open to alternative enforceable approaches, and to work with Congress to best protect consumers and intellectual property interests.   

Broadband Privacy Rules: The FCC’s reclassification of broadband under Title II common carrier authority has turned out to be an unmitigated disaster for consumer privacy protection.

For the past seventeen months since the FCC put the FTC out of the privacy business for common carriers, and since the FCC has not yet promulgated any privacy rules to replace them, American broadband consumers went from having full FTC privacy protection to having no privacy protection at all from the FCC.

This new Appeals Court decision makes the situation worse. Now neither the FCC nor the FTC has consumer privacy protection authority over broadband companies’ non-common carrier businesses.

This also gets even harder to explain to consumers. The FCC’s proposed Title II privacy rules already were inexplicable. Consumers’ downstream traffic from the edge is not covered by the FCC’s proposed privacy CPNI rules but the upstream traffic is covered, and everyone but ISPs can make public the network information that consumers ask an ISP to keep private.

Now because the FCC’s Title II reclassification put the FTC totally out of the consumer protection business for common carriers, common carriers’ vertical non-common carrier businesses, like AT&T’s DirecTV, Verizon’s AOL & Yahoo, and cable’s Internet-related assets are fully exempt from FTC enforcement authority.

That means that in addition to edge providers having a random competitive advantage over broadband providers on FCC CPNI privacy regulation, broadband providers’ edge properties now effectively own a random unexpected exemption from FTC privacy regulation.

Find one consumer that can understand and explain this FCC regulatory privacy chaos or likes it when they understand it. This regulatory mess is exactly what happens when the FCC imagines it can modernize an entire 80-year-old law by itself without Congress by force fitting its version of 1934 telecommunications law into its vision of 21st century regulation.

Again, Congress needs to pass new legislation to create a consumer-centric and uniform privacy protection law that treats like situations similarly. 

Google’s Now Exempt from FTC Unfair and Deceptive Acts and Practices Enforcement: The Ninth Circuit Court Decision likely means Alphabet-Google-Fiber owns common carrier status to no longer be subject to the FTC’s Section 5 Unfair and Deceptive Acts and Practices enforcement, if they choose to play it that way.

Thus this major FCC-FTC consumer protection mess means that the FTC’s worst privacy and deceptive practices violator, Google, perversely could be subject to the least FCC-FTC oversight accountability of any major company.

Even though the FTC found that Google misrepresented its privacy practices to the public twice in the last five years – in the Google-Buzz and the Google Safari hack enforcement actions – under the new full FTC common carrier exemption Google may have no legal obligation to fairly represent its business and privacy practices to consumers going forward. 

Since Google happens to have a small common carrier business, Google Fiber, they now are exempt from all FTC oversight. Meanwhile Facebook and Twitter, which are also under twenty year privacy consent decrees like Google was, will remain fully under FTC jurisdiction.   

New Incentive to Legally Game the System: The combination of the FCC’s decision to partially put the FTC out of the common carrier oversight business and the Appeals Court decision that fully puts the FTC out of the common carrier regulation business, means that there is a now a new synthetic maneuver where a company legally can arbitrage the law and effectively exempt itself from the legal obligation to fairly represent its business and privacy practices to consumers.

Now a Big Data company, or any other edge company for that matter, that seeks to evade any material Federal consumer protection oversight, could simply buy one of the many hundreds of FCC common carrier companies and poof! …exempt itself from FTC oversight.

Conclusion: The FCC’s and FTC’s joint overreach of their self-perceived boundless respective statutory authorities to advance an Open Internet has yielded a perversely anti-consumer protection outcome.

The FCC and FTC have learned that they can run from the rule of law but they can’t hide. The Ninth Circuit Court’s decision exposed that the “plain language” in the FTC’s core Section 5 authority fully exempted common carriers from the FTC’s legal jurisdiction.

Now the FCC and the FTC will have to come to grips with the reality that the FCC’s consumer protection authority alone is far weaker than the joint FCC-FTC consumer protection authority that they assumed existed and touted to reassure the public.

To the extent that the FCC and FTC care more about protecting consumers than protecting their own regulatory turf, they will begin working earnestly with Congress forthwith, to modernize communications, consumer protection, and privacy law to be consumer-centric and able to meet the Internet realities of the 21st century.

***

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.

 

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