If a cellular service provider promises unlimited data, is it on the hook to deliver on that promise?  Yes, says the Federal Trade Commission.  Tuesday, the FTC filed a two-count Complaint against AT&T in a San Francisco federal court alleging that AT&T violated the Federal Trade Commission Act by its deceptive and unfair acts and practices of limiting the data speed of customers with unlimited data plans.  An FTC blog stated that AT&T acted unfairly “because it kept people from using data they paid for and then made them pay early termination fees if they tried to leave AT&T” (Count I) and because it deceived customers by promising “unlimited data and then reducing the data speed without telling customers” (Count II).  Another FTC blog further stated that AT&T misled millions, and in some cases reduced data speed up to 90%.

The FTC Complaint claims that for several years AT&T engaged in the practice of marketing and selling unlimited data plans; while delivering plans that were, in fact, limited by data throttling.  (Data throttling is the practice of reducing data speed for unlimited data plan customers.) According to the FTC, AT&T has throttled at least 3.5 million unique customers a total of more than 25 million times. The FTC alleges that AT&T deceived customers by failing to disclose that AT&T would limit—by data throttling—their unlimited data plans.  As the FTC further alleges, AT&T failed to disclose that it imposed significant and material data speed restrictions on supposedly unlimited mobile data plan customers who used more than a fixed amount of data in a given billing cycle.  The FTC further claims that AT&T advertised data plans as “unlimited” that did not inform those customers that AT&T would modify, diminish, or impair the service it delivered to customers who use more than a specified amount of data.  The FTC claims that these are deceptive and unfair acts and practices that violate Section 5 of the Federal Trade Commission Act.

To prevail on its first count in the Complaint (Unfairness Count), the FTC must prove that AT&T’s practice (of limiting an unlimited data plan by throttling without notifying the customer) substantially injured consumers, that the injury is not outweighed by any countervailing benefits to consumers, and that it is an injury that consumers could not have reasonably avoided.

To prevail on its second count in the Complaint (Deception Count), the FTC must prove that AT&T’s practice (of limiting an unlimited data plan by throttling without notifying the customer) is likely to mislead consumers and that AT&T’s practice is a material one.  And what’s more, the law requires that the practice must be examined from the perspective of a consumer acting reasonably under the circumstances—in other words—a reasonable mobile customer.  Practices that have previously been found to be deceptive include misleading representations or representations without adequate disclosures.  A representation or omission (which is a failure to disclose) must be material, i.e. likely to affect the consumer’s conduct or decision with regard to that service (the unlimited data plan).  If the undisclosed information is found to be material, consumer injury is presumed because consumers are deemed to have been likely to choose differently but for the deception.

Using these legal standards, do you think that AT&T misled unlimited data customers or treated unlimited data customers unfairly?  That is the seminal question.  If the allegations are true, AT&T will attempt to seek the best settlement possible.

How will AT&T minimize the impact of the FTC lawsuit?  Time will tell.  It will be no surprise if AT&T voluntarily and immediately stops unlimited plan data throttling and tries to use it to mitigate this lawsuit.  It will also be no surprise if AT&T negotiates for a low restitution amount paid directly to customers, possibly in the form of credits, hoping to minimize negative impact to its brand and customer loyalty.  AT&T could also agree to, or be required to, issue refund checks to consumers.

That result would raise the question of, what amount of restitution would fairly compensate consumers and what amount money obtained as a result of data throttling should AT&T be forced to give up (legally called “disgorgement”) to the U.S. Treasury?  And, how?

In its Complaint, the FTC actually asked for redress in the form of restitution, disgorgement, refunds, and rescission or reformation of contracts (all standard FTC requests). However, in one of its blogs, the FTC only says it “seeks to stop AT&T from using data throttling on customers who have been promised unlimited data plans” and “asks for refunds for people who paid early termination fees”.  No other refunds are mentioned.  What about the diminished value of customers’ unlimited data plans?  Calculating that number might be a nightmare.  But, isn’t it still worth the effort…for the consuming public?

Deanya K. Cocanougher is a Partner with the firm and has focused her area of practice on consumer law for eleven of the last 24 years. With experience as an FTC Regional Director and Texas AG Consumer Protection Managing Attorney, Deanya has broad knowledge of federal and state consumer law.