California Telecom Providers File Suit to Protect Competitively Sensitive Information

by Nossaman LLP

On May 5, AT&T Mobility along with several other telecommunications providers and trade associations filed a complaint in the Northern District of California against the California Public Utilities Commission (“CPUC”) Commissioners and an Administrative Law Judge (“ALJ”). The complaint alleges that the Assigned Commissioner and ALJ improperly ordered Plaintiffs to turn over competitively sensitive data to a third party in violation of the Supremacy Clause of the U.S. Constitution and the Fourth Amendment protection against unreasonable searches and seizures.  This is an important case because it could impact the scope of information the CPUC, and other government agencies in California, may compel from the entities they regulate.

The Federal Communications Commission requires broadband, wireless, and telephone companies to periodically collect and report specific information to the FCC.  In particular, the FCC created “Form 477” to collect data regarding the availability and characteristics of a provider’s services and its subscription levels.  The FCC recognizes that Form 477 requires highly detailed information and that disclosure of such information could allow a competitor to gain an unfair market advantage.  Thus, the FCC has determined that the confidentiality of such information is necessary and does not share the information with state public utility commissions unless a commission agrees to abide by FCC-prescribed confidentiality rules.  One of those rules is that the state agency will not disclose any confidential information. See 47 C.F.R. § 1.7001(d).

As part of a CPUC ratemaking proceeding, a third party, The Utility Reform Network (“TURN”), requested Form 477 data and market share data through a discovery request.  Over Plaintiffs’ objections, the Assigned Commissioner and ALJ granted TURN’s motion to compel and ordered the production of that data subject to a protective order.

The question, then, is whether requiring disclosure of the information in question violates the FCC’s confidentiality rules.  Plaintiffs say yes.  Defendants and TURN say no.

Plaintiffs assert that there is clear conflict preemption—here the Assigned Commissioner and ALJ issued a ruling that is preempted by conflicting federal law.  Moreover, Plaintiffs assert that compelling disclosure of such information would violate their Fourth Amendment rights because the CPUC lacks the jurisdiction to compel such disclosure and because the information is not “reasonably relevant” to the ratemaking proceeding.

Defendants, however, argue that the disclosure would be solely to TURN pursuant to a strict protective order.  Defendants assert that disclosure is permissible because the FCC’s regulatory regime takes the form of “cooperative federalism”, which leaves states significant freedom to achieve the goals of the Federal Telecommunications Act—to monitor and promote competition for telecom services.  Defendants also argue that the CPUC is required to monitor competition in California, and the data requested is essential to fulfill that purpose.

Finally, Defendants state that courts will not presume that information sought for the purpose of a government investigation will be put to improper use; thus, Plaintiffs have not established that there is a violation of the Fourth Amendment.

The Northern District heard Plaintiffs’ application for a temporary restraining order today.  How this litigation plays out could impact the relationship between federal rules governing the confidentiality of certain information and overlapping state rules. Stay tuned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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