The Federal Trade Commission will appeal a court decision that let AT&T avoid punishment for throttling the Internet connections of customers with unlimited data plans.

The FTC sued AT&T in October 2014, seeking refunds for customers. But last month, a three-judge panel at the US Court of Appeals for the Ninth Circuit ruled in favor of AT&T, overturning a District Court decision that had gone in the FTC's favor.

The FTC's options include seeking a rehearing of the case in front of the entire Ninth Circuit appeals court, and that is what the commission will do. "We are going to be seeking a rehearing in that matter," FTC Chairwoman Edith Ramirez told US senators during an FTC oversight hearing yesterday. If the FTC fails at the appeals court level, it could take the matter to the US Supreme Court, but Ramirez did not address that possibility.

AT&T's victory over the FTC could have a long-term impact on the agency's ability to enforce consumer protection laws. We described the situation in a previous article:

The FTC's charter from Congress already prohibited the FTC from regulating common carriers, a designation that the Federal Communications Commission (FCC) has long applied to AT&T and other phone companies. But the FTC thought it could police non-common carrier activities regardless of whether another part of a company's business falls under the FCC's common carrier designation. When the FTC sued AT&T in October 2014, the company was a common carrier for phone service but not for Internet access. The FTC argued that it could regulate AT&T's non-common carrier mobile data business, but AT&T argued that it was entirely exempt from FTC jurisdiction because it was a common carrier for voice service.

Ninth Circuit judges sided with AT&T, saying that the company is exempt from FTC oversight even when it's providing non-common carrier services. This has raised questions about whether the FTC can enforce any of its rules against other companies that perform at least some common carrier activities.

The ruling seems to indicate that large companies with only small common carrier businesses are still subject to FTC oversight. The ruling said that "AT&T’s status as a common carrier is not based on its acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue."

This probably means that the FTC can still apply its rules to Google's search division even though the company separately offers fiber Internet service. But the judges did not set any clear guidelines for determining which companies may escape FTC jurisdiction.

The court decision has "significant ramifications for our jurisdiction," Ramirez told senators yesterday.

Since the case began, AT&T has changed its throttling policies so that "unlimited data" customers are only throttled if they use at least 22GB a month and are in range of a congested cell tower.

ISPs now common carriers

The Federal Communications Commission decision in February 2015 to reclassify Internet access as a common carrier service also limits the FTC's ability to enforce prohibitions on unfair and deceptive practices.

"Reclassification [of ISPs] has had an impact on our jurisdiction," Ramirez said. She indicated that the solution to that problem is for Congress to remove the common carrier exemption from the FTC Act. "The FTC, on a unanimous and bipartisan basis, we have long argued that the common carrier exemption to our jurisdiction is something that no longer ought to apply. It’s absolutely outdated," Ramirez said.

In written testimony, Ramirez further explained that the common carrier exemption "originated in an era when telecommunications services were provided by highly regulated monopolies. The exception no longer makes sense in today’s deregulated environment where the lines between telecommunications and other services are increasingly becoming blurred, such as when telecommunications companies are buying edge providers and consumers increasingly communicate over online social networks instead of landlines."

The FCC's jurisdiction over common carriers is not enough to fill the gap in enforcement, Ramirez said. The FCC does not have the Federal Trade Commission's authority to seek refunds for consumers, she noted. (The FCC is trying to collect a $100 million fine from AT&T over unlimited data throttling, but the money would be deposited into the US Treasury instead of being given to customers.)

Ramirez said she fears for the FTC's ability to enforce rules on bill cramming, Do Not Call violations, and children's online privacy.

"The FCC’s authority over common carriers is limited to the provision of services for or in connection with common carriage," she said. "If common carriers are providing non-common carrier products or services, one outcome might be that neither the FCC nor the FTC would have jurisdiction to respond to practices that harm consumers."