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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