FTC Takes Aim at AT&T: Lessons For Multichannel Marketers

On October 28, 2014, the FTC announced that it was suing AT&T on the claim that AT&T misled “millions of its smartphone customers by charging them for ‘unlimited’ data plans while reducing their data speeds, in some cases by nearly 90 percent.”  Just 20 days earlier, it announced a $105 million settlement with AT&T over alleged unauthorized charges on customers’ bills (so-called “cramming”).  Not only were these  aggressive moves against an industry titan, they served as a reminder of important consumer advertising law basics that multichannel retailers ought to study (and implement as needed).

BACKSTORY

AT&T has earned a reputation for a substantial degree of immunity when it comes both to consumer rights regulators and class action lawsuits.  This is owed in no small part to its 2011 victory before the United Supreme Court in AT&T Mobility LLC v. Concepcion, which enforced a “no class actions” clause in AT&T’s customer agreement that gave consumers a choice between arbitration or a small claims court — one claim at a time.  In short, the Supreme Court held that the Federal Arbitration Act trumped the longstanding California legal principle that such anti-class action provisions were unfair to consumers.  And so, the Concepcion decision forced customers to pursue claims against AT&T piecemeal, cases too small to attract class action plaintiffs lawyers hungry for big pay-offs.  And, even if AT&T lost an occasional customer-initiated case, arbitral confidentiality might keep a lid on such cases, leaving their other customers none the wiser.  In the wake of Concepcion, similar clauses began popping up in the contracts of other companies.

But not all claims go away quietly, and small claims court proceedings are public.  Enter  Matt Spaccerelli, an unemployed truck driver with a rapacious appetite for cellular data.

“DATA THROTTLING”

Spaccerelli paid AT&T for an unlimited data plan for his smartphone.  But, over time, his data speed slowed down as his data usage increased.  AT&T told him as much.  So Spaccerelli filed suit in California state court arguing “that AT&T purposely slowed [his] down data speeds, despite the fact that he was subscribed to an ‘unlimited data’ plan.”  He alleged that AT&T’s data stream was being illegally and unfairly “throttled” after reaching 1.5 to 2 gigabytes of data in a single billing cycle.  In 2012, Judge Russell Nadel of the Ventura Superior Court in Simi Valley agreed, awarding Spaccerilli $850 in damages.  The judge rejected AT&T’s claim that while it agreed to provide unlimited data, it did not promise to provide that data at a specific speed.  As far as I can tell, AT&T never appealed.

What followed was nationwide publicity over the data throttling controversy involving AT&T as well as other carriers.  For his part, Spaccerelli set up a web site to help other AT&T customers file their own claims.  At the same time, consumer advocacy groups urged the FTC to get involved (as an alternative to piecemeal arbitration and litigation) with an enforcement action predicated on its power to investigate and punish unfair and deceptive trade practices under Section 5 of the FTC Act.  In the meantime, AT&T changed the terms of its customer agreements to disclose fully and more clearly its throttling policy.  AT&T continues to offer unlimited data plans subject to that express proviso.

THE FTC AWAKENS

In October 2014, after some had written off the possibility of an enforcement action, the FTC issued its dramatic announcement of a data throttling case against AT&T.  Not only that, it announced a second enforcement action against AT&T, alleging that AT&T had included subscription charges in its cellular phone bills for services consumers had never ordered (also known as cramming). Suddenly, the telecommunications titan was in the consumer protection cross-hairs.

The FTC settled its “cramming” case the very same day it filed suit. In a press release, the agency revealed that AT&T had agreed to pay $80 million for consumer restitution and another $25 million in penalties and fees to resolve the case.

It is typical for the FTC to announce and settle cases on the same day. The filing of the action is necessary to obtain a judgment through which the settlement can be enforced.

However, when the FTC filed its lawsuit against AT&T for data throttling, there was no settlement proclamation, most likely because (1) the case likely will be a much more difficult one for the agency to win; and (2) there may be significantly more money at stake.  For its part, AT&T has vowed to fight.

LESSONS FOR MULTICHANNEL MARKETERS

First and foremost, welcome to the newer, more aggressive FTC under Chairwoman Edith Ramirez, who took office in 2013.  The FTC has boldly pursued a well-heeled regulated entity on what may be a very tough consumer advertising case.  Whatever AT&T was offering to settle case clearly wasn’t enough.  So, add a heightened risk of FTC enforcement to your list of worries.  On the positive side, it’s far better to be dealing with the FTC than with a class action attorney.  The FTC understands the need for punishments to fit the crime, and is generally not looking to overwhelm good corporate citizens in the name of a contingent legal fee.  In fact, if you’ve done a good job implementing policies and procedures to lower the chances of falling afoul of the FTC’s rules, you might not have to pay a penny.

Second, the FTC isn’t limiting itself to clear winners.  The question of what constitutes “unlimited data” is, in fact, a thorny one.  Does it really mean data without end to which AT&T can be held to account?  If so, does it obligate AT&T to transmit that data at any particular speed?  And what if AT&T throttles back data transmission to all of its customers at certain levels of use for legitimate technological reasons (say, to protect its network)?  Might “unlimited data,” in fact, mean that you’ll get as much data as you can get under the rules by which AT&T provides it to all users?  And, underscoring all of this, can you really mislead a customer if they assume that “unlimited data” means the incredible notion of “unlimited data at unlimited speeds” at whatever the cost or risk to the carrier?  Consumer protection law has always carved out an exception for representations that, if taken literally, would bind retailers to providing the impossible or the unprovable.  For example, retailers have traditionally enjoyed a zone of immunity for advertising puffery.  In the final analysis, the test is what a reasonable consumer would believe, not a credulous smartphone user who thinks the realities of cellular networks must bend to fit his or her wide-eyed idea of a Magellanic Cloud of endless LTE bandwith.

Third, the marketplace is filled with “representations” that that could be the subject of long, costly FTC enforcement actions.  Areas to examine closely include privacy and security representations (is your website as safe as you profess?), product performance and useful life promises (do you have data to support your claims?), and return policies (have you disclosed adequately any material limitations?).  It also wouldn’t be a bad time to revisit other FTC advertising issues, as well as the venerable mail order rule which was recently amended.