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IoT Privacy Implications Loom Large in FTC Broadband Advertising Case

IoT Privacy Implications Loom Large in FTC Broadband Advertising Case

November 13, 2017

A surprising FCC intervention in an FTC advertising litigation may offer insight into the FCC’s thinking on a topic not at issue in the case: broadband and IoT privacy.  The question remains whether the FCC can win the Ninth Circuit over to its position.

BACKGROUND

The Federal Trade Commission (FTC) and a nationwide wireless carrier are locked in litigation over the FTC’s jurisdiction over common carriers.  The case arises from an FTC enforcement action alleging that the carrier engaged in unfair or deceptive practices in advertising its unlimited broadband data plans.  But the case has taken a turn, and may have significant implications for the FTC and how common carriers structure themselves.

The defending carrier has argued throughout the litigation that its status as a common carrier exempts it from the FTC’s jurisdiction.  The Federal Trade Commission Act (FTC Act) does not apply to common carriers subject to the Communications Act, 15 U.S.C. § 45(a)(2), which provides the Federal Communications Commission (FCC) with plenary jurisdiction over such carriers.  But the FTC argues that its enforcement is based on the defending carrier’s behavior as an advertiser, which does not implicate its activities as a common carrier.  The agency argued that the FTC only loses jurisdiction over an entity when the entity is engaged in common carrier activities.  It went on to argue that the defending carrier’s reading of the “common carrier exception” would create a regulatory gap where certain activities would escape both the FTC and FCC’s jurisdiction.

The United States District Court for the Northern District of California ruled in favor of the FTC, holding that the common carrier exception applies only where the entity has the status of common carrier and is actually engaged in common carrier activity.  On appeal, a Ninth Circuit Court of Appeals panel reversed, holding that the defending carrier’s status as a common carrier exempted it from the FTC’s jurisdiction altogether.  The FTC appealed that decision to the full Ninth Circuit, which decided to rehear the case en banc and held that the panel decision could not be cited as Ninth Circuit precedent – suggesting that it may overturn that decision.  Oral argument for the rehearing took place on September 18, 2017. 

FCC INTERVENTION      

The defending carrier raised a new argument before the full Ninth Circuit: that the FCC could impose “structural separations” compelling carriers to repose their carrier and non-carrier businesses in separate subsidiaries.  This would solve the regulatory gap, maintaining the FCC’s complete jurisdiction over common carriers, while giving the FTC jurisdiction over non-carrier activities.  The defending carrier noted that the Commission required structural separations in the past, and could do so again here.  The Court seemed intrigued by this argument, engaging in several colloquies about this suggestion.

But the FCC was not as receptive.  In a letter filed after oral argument, the FCC argued that it would not impose structural separations on the facts presented.  First, it noted that it lacked the legal authority to impose such separations because the Communications Act gives it authority over common carriers “only to the extent that [they are] engaged in providing telecommunications services.” Further, requiring separations would not fall under the FCC’s ancillary jurisdiction.  Next, it noted that it has imposed structural separations for a single purpose: to prevent abuses by carriers with market power, such as monopolies.  That concern is not present here.  Finally, the FCC noted that the 1996 Telecommunications Act changed the communications landscape, eliminating the need to impose separations.  For these reasons, the Commission argued that imposing separations in the facts presented to the Ninth Circuit would be unprecedented.

The FCC’s intervention in this case is significant for another reason: it signals that the agency is not interested in regulating broadband and IoT privacy.   This issue has split the FCC for the past year.  In October 2016, under then-Chairman Tom Wheeler, the FCC adopted first-of-their kind broadband privacy rules, which regulated how carriers handled their subscribers’ personal information.  In the Spring of 2017, Congress exercised its powers under the Congressional Review Act to prevent these rules from taking effect.  FCC Chairman Ajit Pai has consistently taken the position that the FTC, not the FCC, should regulate broadband and IoT privacy, as this would ensure consistent privacy rules between common carriers and other entities.  By rejecting the structural separations argument, the FCC has again signaled that it is not interested in regulating broadband privacy, even if that means expanding the FTC’s power. 

* * * * *

A decision from the full Ninth Circuit is not expected for some time.  But a case that began as a dispute over advertising now appears to have significant implications for which federal agency emerges as the country’s chief privacy regulator.  Whether the Ninth Circuit shares the FCC’s vision or has a vision of its own remains to be seen.    

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