Tuesday, February 27, 2018

NY AG proceeds against Charter for throttling providers while boasting of internet speeds

 People v. Charter Communications, Inc., No. 450318/2017 (N.Y. Sup. Ct. Feb. 16, 2018)

Charter allegedly defrauded New York consumers by promising high-speed Internet services and reliable access to online content that it knew it couldn’t or wouldn’t deliver, in violation of Section 53(12) of the NY Executive Law and sections 349 and 350 of the GBL.  Defendant Spectrum-TWC advertised specific Internet speeds, available in tiers ranging from 20 to 300 megabits per second (Mbps), with higher fees for faster-speed tiers. Spectrum-TWC assured subscribers not only that they could achieve the advertised speeds, but that subscribers were guaranteed “reliable Internet speeds,” delivered “consistently,” “without slowdowns,” and otherwise without interruption. Spectrum-TWC assured subscribers that the promised speeds would be delivered anywhere in their homes, at any time, and on any number of devices, regardless of whether the subscriber connected by wire or wirelessly.

However, for many customers, the promised Internet speeds were allegedly impossible to attain because of technological bottlenecks for which Spectrum-TWC was responsible. First, defendants determined that the older generation modems they leased to many of their subscribers were incapable of reliably achieving Internet speeds of even 20 Mbps per second. Spectrum-TWC’s modem “replacement” program allegedly resulted in 900,000 subscribers continuing to pay for promised speeds beyond the technical capabilities of their Spectrum-TWC-provided modems, as Spectrum-TWC knew.

Second, Spectrum-TWC also failed to maintain its network as necessary to deliver the promised speeds. Although Spectrum-TWC allegedly knew the precise levels of network congestion at which customers would be prevented from achieving the promised speeds, it deliberately hid and exceeded those congestion levels to save itself money.

Third, due to older or slower wireless routers it provided, and other technological limitations, Spectrum-TWC allegedly knew that its subscribers could not achieve the same speeds wirelessly as through a wired connection, as confirmed by at least three independent tests of Internet speed.

Next, Spectrum-TWC allegedly represented that its subscribers would receive reliable, uninterrupted access to the Internet content of their choice, but failed to deliver on these promises. Spectrum-TWC’s assurances of reliability were allegedly specific and unconditional, guaranteeing access to specific content with “absolutely no buffering,” “no lag,” “without interruptions,” and with “no downtime.” “These promises were explicitly tied to the delivery of some of the Internet’s most popular content, including Netflix and online games, and Spectrum-TWC’s advertisements prominently featured such content as being accessible without interruption.” Yet Spectrum-TWC allegedly failed to maintain enough network capacity in the form of interconnection ports (where one network connects to another) to deliver this content as promised. It also allegedly “throttled” access to Netflix and other content providers by allowing those interconnection ports to degrade, causing slowdowns, then extracted payments from those content providers as a condition for upgrading the ports. Spectrum-TWC’s subscribers thus suffered, generating thousands of consumer complaints to NY’s AG.

The FCC regulates broadband Internet access service (BIAS) providers like defendants in various ways, including requiring them to “disclose accurate information regarding the network management practices, performance, and commercial terms of [their] broadband Internet access services sufficient for consumers to make informed choices regarding use of such services.” They must disclose “expected and actual access speed and latency,” as well as accurate monthly subscription rates and usage-based fees. The FCC established a “safe harbor” program called Measuring Broadband American (MBA) to “measure the actual speed and performance of broadband service,” and stipulated that a BIAS provider could satisfy the transparency standard by “disclos[ing] data from the project showing the mean upload and download speeds in megabits per second during the ‘busy hour’ between 7:00 p.m. and 11:00 p.m. on weeknights.”  The FCC’s 2015 Open Internet Order states that the FCC “expect[s] that disclosures to consumers of actual network performance data should be reasonably related to the performance the consumer would likely experience in the geographic area in which the consumer is purchasing service.” The FCC also created a “Broadband Nutrition Label,” a second “voluntary safe harbor for the format and nature of the required disclosure to consumers,” modeled on nutrition labels used for food products. BIAS providers provide consumers with the format for an easy-to-understand label that discloses a service plan’s “typical speed[s],” i.e., “typical speed downstream,” and “typical speed upstream,” which reflect averages measured during the peak usage period of the service”

However, FCC regulations clarify that the provider could still be found in violation of federal law if the content of the disclosure is “misleading or inaccurate,” or if the provider “makes misleading or inaccurate statements in another context, such as advertisements or other statements to consumers.”

TWC-Spectrum argued that it advertised only “up to” certain maximum speeds (as measured in Mbps), and that it relied on the FCC’s safe harbor to substantiate these performance claims. TWC-Spectrum further asserts that the MBA reports regularly showed that its actual speeds, based on mean or median peak-period speeds,met or exceeded the maximum advertised speeds. TWC-Spectrum also participated in the FCC’s safe-harbor consumer labeling program.

The court rejected defendants’ conflict preemption argument. They contended that the central allegation underlying the complaint is that Spectrum-TWC failed to deliver the broadband speeds advertised to its customers, but this allegation depended on methodologies for calculating actual broadband speeds starkly inconsistent with the federal methodology. “[T]he ‘starting presumption is that Congress does not intend to supplant state laws,’ unless its intent to do so is ‘clear and manifest,’” especially for state efforts to enforce consumer protection laws. Spectrum-TWC didn’t identify any statutory provision that preempts state anti-fraud or consumer-protection claims, and indeed there was a broad savings clause.

“An administrative agency cannot exceed the authority Congress has granted it,” so the FCC couldn’t preempt state consumer protection law either. Though defendants argued that NY’s contentions “thwart[]” the FCC’s purposes and objectives in promulgating the Transparency Rule, and that it would be “impossible for broadband providers in New York to rely on the FCC’s safe harbors without running afoul of state law,” “the FCC’s purposes and objectives are irrelevant to the preemption analysis where, as here, Congress has expressly preserved state laws.” Plus, the Transparency Rule recognizes concurrent state authority over deceptive practices; although the Transparency Rule requires certain performance disclosures by BIAS providers, it doesn’t provide a safe harbor for statements outside those disclosures. The Rule provides a limited federal “safe harbor” from FCC enforcement actions on transparency grounds for broadband providers who participate in the MBA program, insofar as their official disclosures comply with the “format” specified by the FCC. But there’s no insulation from liability for misrepresentations made in other consumer communications; the FCC specifically explained that “providers may still be in violation of FCC rules if the content of their labels is misleading or inaccurate or if they make misleading or inaccurate statements to consumers in ads or elsewhere,” and that “a provider making an inaccurate assertion about its service performance in an advertisement, where the description is most likely to be seen by consumers, could not defend itself against a Transparency Rule violation by pointing to an ‘accurate’ official disclosure in some other public place.”

Separately, Spectrum-TWC’s preemption argument didn’t apply to the claims relating to modem failures, wireless failures and service reliability failures, because those claims were entirely unrelated to Spectrum-TWC’s Transparency Rule disclosures, as well as claims relating to service failures in the 100, 200, and 300 Mbps plans, which weren’t comprehensively measured by the MBA program, and were thus not part of Spectrum-TWC’s Transparency Rules disclosures. As for the remaining claims, “the FCC’s goal of promoting competition through the Transparency Rule is not thwarted by state laws that require broadband providers to speak truthfully.” New York’s laws don’t require Spectrum-TWC to disclose anything, but only demand that defendants refrain from fraud, deception, and false advertising when communicating with New York consumers.

What about the NY AG’s alleged use of “metrics that cannot be squared with federal law, which looks to the average peak-period speeds measured by the MBA as the appropriate way to measure and describe actual broadband performance”? First, many of the allegations of the complaint explained why the disclosures were deceptive, without reference to particular speed tests.  Second, NY wasn’t challenging the “typical speed downstream” and “typical speed upstream” disclosures made by Spectrum-TWC in the format specified by the Transparency Rule, but rather its TV ads ads in other media “that conveyed the overall impression that subscribers would have ‘consistent’ or ‘reliable’ service at the speeds advertised for the plans that they paid for.” There was conflict with the purposes and objectives of the Transparency Rule.

Defendants also argued that federal law preempts state regulation of interconnection disputes, and that NY was trying to do so by alleging that Spectrum-TWC deceived its customers by “fail[ing] to maintain sufficient ports at its interconnection points with backbone and content providers” and knowingly causing “interruptions and slowdowns during peak hours.” This argument was “baseless.” NY wasn’t trying to regulate bilateral agreements, but regulating Spectrum-TWC’s advertising that specific online content would be swiftly accessible through its network, while it was simultaneously deliberately allowing that service to degrade that service and failing to upgrade its network’s capacity to meet demand for this content.  An internal email, for example, observed that the company’s approach to intentionally delaying capacity upgrades “may be artificially throttling (subscriber] demand.”

Next, Spectrum-TWC argued that it advertised its broadband service plans as providing speeds “up to” a particular speed, so reasonable consumers should have expected to receive the advertised speeds or less.  That conflicted with NY law on “up to” claims where, as alleged here, the advertised “up to” speeds were functionally unattainable as a result of the defendants’ knowing conduct. In a consumer fraud action, the phrase “up to” does not reflect a maximum, but expresses a representative amount a consumer would receive. The NY AG alleged this to be what consumers expected, and also that Spectrum-TWC knew it couldn’t meet those expectations. FTC pronouncements are persuasive authority in the context of consumer protection suits brought under GBL sections 349 and 350, and the FTC interprets “up to” language similarly.

Spectrum-TWC argued that its statements about speeds, reliability and access to content were mere “puffery.” It cited claims to have a “blazing fast, super-reliable connection” and campaigns that said “[e]njoy Netflix better” or “[s]tream Netflix and Hulu movies and shows effortlessly.” But “advertising claims that are easily capable of being proved to be true or false through common testing methodologies are, by definition, not puffery,” and statements such as “no buffering,” “no lag,” with “no slowdowns,” “without interruptions,” and “without downtime” “are all highly specific claims that are easily capable of being proven to be true or false through common testing methodologies, and, by definition, are not puffery.” The puffier statements couldn’t be read in isolation; it’s the net impression that matters.

Finally, the court declined to stay the action in deference to the FCC’s “primary jurisdiction” over this suit. This doctrine was irrelevant, given that the case involved “purely state law claims over which the FCC has neither jurisdiction nor expertise, and which involves misrepresentations in advertisements and other media not governed by FCC regulations.” The heart of the case was not a “complex and technical question[] of engineering and policy,” but a traditional deceptive practices claim that falls traditionally within the “conventional competence of courts.”

Even net neutrality repeal didn’t change things; the FCC’s order said: “[a]lthough we preempt state and local laws that interfere with the federal deregulatory policy restored in this order, we do not disturb or displace the states’ traditional role in generally policing such matters as fraud, taxation, and general commercial dealings, so long as the administration of such general state laws does not interfere with federal regulatory objectives.”

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