A federal judge has rejected AT&T's claim that it can't be sued by the Federal Trade Commission, which is trying to put a stop to the carrier's throttling of unlimited data plans.

The FTC sued AT&T in October 2014, saying the company deceived customers by offering unlimited data plans and then throttling data speeds once customers hit certain usage thresholds, such as 3GB or 5GB in a month. AT&T claimed in January that because it is a common carrier, it isn't subject to FTC jurisdiction.

In a decision out of US District Court in Northern California yesterday, Judge Edward Chen refused to dismiss the lawsuit.

It's true that the FTC Act exempts common carriers from the commission's oversight. But while AT&T is a common carrier for landline telephone and mobile voice service, the mobile data services at issue were not classified as common carriage at the time the lawsuit was filed. AT&T argued that it is exempt from FTC oversight "even when it is providing services other than common carriage services," Chen wrote.

"Contrary to what AT&T argues, the common carrier exception applies only where the entity has the status of common carrier and is actually engaging in common carrier activity," Chen wrote.

The Federal Communications Commission ultimately did reclassify mobile data as a common carrier service in February, a decision that takes effect 60 days after publication in the Federal Register, which hasn't happened yet. AT&T argued that this decision also strips the FTC of jurisdiction over AT&T, even for violations that occurred before the reclassification, an argument Chen rejected.

"When this suit was filed, AT&T’s mobile data service was not regulated as common carrier activity by the Federal Communications Commission," Chen wrote. "Once the Reclassification Order of the Federal Communications Commission (which now treats mobile data serve as common carrier activity) goes into effect, that will not deprive the FTC of any jurisdiction over past alleged misconduct as asserted in this pending action."

AT&T also mischaracterized the purpose of the common carrier exemption in the FTC Act, according to Chen. "Although AT&T argues the purpose of the common carrier exception is to ensure that there is no agency overlap in terms of regulation, it appears that the more precise purpose was to prevent overlap between common carrier regulations," he wrote, citing a previous case involving the FTC. "AT&T points to nothing in the legislative history suggesting that Congress intended to prevent any and all regulatory overlap (as opposed to focusing on the Interstate Commerce Commission’s regulation of common carriers as such). Indeed, it is not uncommon for any particular activity of a business to be subject to multiple sets of regulations."

For more than 100 years, going back to regulations applied to the railroad industry, an entity "deemed a common carrier [has been] regulated as such under the common law only where it was actually engaged in common carriage services," the judge wrote.

FTC seeks refunds for millions of consumers

Chen's decision allows the FTC to continue making its case against AT&T. FTC Chairwoman Edith Ramirez praised the decision and said she looks forward to getting refunds to consumers.

“We are gratified that the court concluded that the common carrier exemption does not insulate AT&T's conduct from FTC enforcement action," Ramirez said in a statement e-mailed to reporters. "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.”

AT&T will appeal Chen's ruling. “We’re obviously disappointed in, and disagree with, the decision and will seek to appeal it as soon as possible," the company told Ars.

At the same time that AT&T was arguing that its mobile data service was exempt from FTC oversight because of the common carrier exemption, it claimed that the FCC can't reclassify mobile data as a common carrier service. The FCC disagreed and reclassified mobile data anyway, raising the possibility that it too could penalize AT&T.

The FCC's new rules ban throttling except in cases of "reasonable network management." AT&T could argue that the throttling is necessary to keep its network running smoothly, but FCC Chairman Tom Wheeler has objected to throttling of plans that are supposed to be unlimited and forced Verizon Wireless to back down from a throttling plan last year.

AT&T stopped offering unlimited data plans to new customers in 2010 but allowed existing customers to keep the plans, "in essence, to ensure that they would not switch mobile data providers," Chen wrote.

All the major carriers throttle to some extent, but AT&T's throttling is especially harmful to consumers because the speed reductions are applied to LTE users even when they're not connected to congested cell towers. AT&T promises that it will change this policy sometime in 2015 but hasn't said exactly when.

Whether the FTC can continue to take actions against data providers after the common carrier reclassification takes effect depends on Congress, which could remove the exemption for common carriers from the FTC Act. Such a move could help consumers; the FTC noted in a court filing that "[t]he FCC is not authorized to seek refunds for injured consumers, and its enforcement authority is limited to conduct going back one year. AT&T’s throttling program has been in effect for more than three years, and has, over the course of that time, inflicted economic harm on millions of customers."

In either case, the FCC is taking a greater role in regulating Internet providers. Besides the rule against throttling, the FCC plans to issue broadband-specific privacy rules that Internet providers will have to follow. AT&T, which is monitoring its home broadband customers' Web browsing habits in order to serve personalized ads, may have to read those forthcoming rules carefully as well.