Judge Denies AT&Ts Request to Dismiss iPhone-Related FTC Lawsuit

Josh Long**Editor’s Note: Which is America’s top wireless network? Click here to see what we discovered.**

A federal court this week rejected AT&T’s request to squash a Federal Trade Commission lawsuit that claims the company engaged in deceptive practices by slowing data speeds of iPhone customers who subscribed to unlimited plans.

AT&T, the first U.S. wireless provider to carry Apple’s juggernaut smartphone in 2007, expressed disappointment in the March 31 ruling and said it planned to file an appeal as soon as possible.

Edward Chen, a U.S. District Judge in the Northern District of California, rejected AT&T’s argument that the century-old Federal Trade Commission Act of 1914 barred the agency from asserting authority over the company because AT&T is a common carrier. He pointed out the FTC’s complaint relates to mobile data, a non-common carriage service, and that a company was regulated as a common carrier “under the common law only where it was actually engaged in common carriage services.”

“We are gratified that the court concluded that the common carrier exemption does not insulate AT&T’s conduct from FTC enforcement action,” FTC chairwoman Edith Ramirez said. “We look forward to proving that AT&T’s marketing of its ‘unlimited’ data plans was unfair and deceptive and returning money to the millions of consumers who were harmed by AT&T’s action.”

The mobile-phone giant also failed to persuade the judge that the Federal Communications Commission’s recent decision to reclassify mobile data as a common carriage service placed mobile data outside FTC’s jurisdiction. The FCC’s decision was part of its larger Internet order that is already facing legal challenges from a broadband association whose members include AT&T.

AT&T argued that once the reclassification order took effect, the FTC could no longer pursue its case. Chen, however, found the reclassification order would impact “substantive rights.”

The judge quoted the FTC’s observation that while the FCC was “poised to sanction AT&T for its throttling program,” the FCC “is not authorized to seek refunds for injured customers, and its enforcement authority is limited to conduct going back one year.”

Even when the reclassification order takes effect, Chen concluded in his 23-page ruling, the FTC retains jurisdiction over alleged misconduct that occurred in the past.

Throttling Program

The FTC claims AT&T’s throttling program that began in July 2011 – slowing down speeds of iPhone customers on unlimited plans – was unfair …

… and deceptive in part because the mobile-phone giant failed to reveal that it would impose restrictions in a given billing cycle. AT&T has reduced the speeds of 3.5 million subscribers on unlimited plans more than 25 million times, the government agency alleged last year when it filed the lawsuit.

Responding to the lawsuit in 2014, an AT&T executive characterized FTC’s allegations as “baseless” and said the company has been honest with its customers from the get-go.

Wayne Watts, AT&T’s senior executive vice president and general counsel, referenced a July 29, 2011, press release in which AT&T disclosed plans to reduce data for a small percentage of smartphone customers who were the heaviest users in a billing cycle. AT&T’s program has only impacted about 3 percent of customers, and subscribers are informed via text message before the changes take place, Watts said.

AT&T began offering unlimited data plans to iPhone users in 2007 for $20 per month, according to the FTC. That was when AT&T had an exclusive right with Apple to carry the device.

AT&T increased the fee to $30 per month in 2008 when the iPhone 3G was released, and two years later, the company discontinued offering unlimited data plans but grandfathered in the millions of customers who had already subscribed to an unlimited data plan, the agency said.

Apple’s iPhone is synonymous with the 21st century age of the smartphone. As of the end of July 2014, Apple ranked as the leading smartphone maker with 42 percent OEM market share, and 173 million Americans owned smartphones, according to comScore.

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