The Ninth Circuit Is Wrong on the Section 5 Common Carrier Exemption, Argues OTI and Other Social Justice Organizations

Yesterday, OTI and a broad coalition of social justice organizations filed an amicus brief in the Ninth Circuit Court of Appeals supporting the Federal Trade Commission (FTC)’s petition for rehearing en banc in FTC v. AT&T Mobility.

Section 5 of the FTC Act, which the FTC enforces and which constitutes the cornerstone of the FTC’s authority, broadly prohibits “unfair and deceptive acts or practices.” Section 5, however, does not apply to certain aspects of the economy. One such exemption is the so-called “common carrier exemption,” which exempts from Section 5’s reach common carriers regulated by other agencies such as the Federal Communications Commission. Previous FTC interpretation limits that exemption to common carriers only when they are engaging in common carrier activities (“activities-based”), like providing telephone service.

The Ninth Circuit in AT&T Mobility rejected the “activities-based” interpretation, opting instead to interpret the exemption as “status-based.” This means that companies with the “status” of common carrier are beyond Section 5’s reach, even when not acting as a common carrier. The opinion would allow a large sector of industry to escape FTC enforcement authority as beyond Section 5’s reach, while also escaping the FCC’s authority, which is limited to common carriers.

The brief addressed some specific concerns of the social justice organizations. Should the opinion stand, it would curtail the FTC’s ability to protect consumers against (1) unfair and deceptive data-driven activities; and (2) data-driven activities that disproportionately harm historically disadvantaged communities.

The FTC has been at the forefront of the debate on big data and data-driven technologies. It has previously used its Section 5 authority to protect consumers from a variety of harmful data-related practices. For instance, it has challenged “deceptive” practices regarding the using and sharing of data and whether companies track their customers, and “unfair” practices involving harms flowing from data breaches and from the knowing sale of financial account data to scam artists.

The FTC has also closely scrutinized big data practices and the ways in which those practices can lead to discriminatory harm. In particular, it has looked at biases and errors in underlying data of predictive analytics systems. Hidden or uncorrected biases in such systems can lead to discriminatory outcomes and outcomes that otherwise perpetuate harmful and inaccurate biases about race, gender, or other classes. The biases could ultimately result in differential pricing schemes or targeted ads for payday loans.

The AT&T Mobility opinion threatens to undermine the FTC’s work in these areas, particularly with regard to companies that have the “status” of common carrier but do not always act as a common carrier. Verizon, a phone and internet company, also owns AOL and may soon own Yahoo. AT&T may soon own Time Warner, Inc. (the content company, not the cable company). AOL, Yahoo, and Time Warner are not common carriers, but do they escape regulatory oversight because AT&T and likely Verizon too have the “status” of common carrier? The opinion appears to answer “yes.” If that’s so, then what happens if AOL, Yahoo, or Time Warner starts acting in a discriminatory way that harms communities of color? Both the FTC and the FCC would be powerless to stop those practices.

The Ninth Circuit came to the wrong conclusion in this case, as the Court did not analyze the real-world consequences of narrowly interpreting the common carrier exemption. Our brief pointed to at least some of those real-world problems. The opinion should be overturned.