On November 3, Judge Vince Chhabria of the U.S. District Court of the Northern District of California held that federal law does not bar the California Public Utilities Commission (CPUC) from requiring telecommunications companies to hand over, under an adequate protective order, confidential subscriber data to The Utility Reform Network (TURN) as part of an investigation into state market competitiveness.

However, Judge Chhabria also rejected a motion for summary judgment filed by CPUC and TURN because it has not yet been demonstrated that the proposed protective order would, in fact, adequately protect the companies from competitive harm. Because such protection is a necessary predicate to avoiding a conflict with FCC regulations, Judge Chhabria reasoned, the adequacy of the protective order must be determined before CPUC can force companies to turn over such sensitive data.

Background

In November 2015, CPUC launched an investigation into the state of competition in the California telecommunications marketplace.  As an interested third party, TURN, a consumer advocacy group, sought subscriber data from the telecommunications companies that were named as parties in the regulatory proceeding. When the telecommunications companies protested, the CPUC’s assigned administrative law judge ruled in TURN’s favor and ordered the companies to turn over the requested data.

Instead, the companies filed a motion for summary judgment and a request for a permanent injunction in federal District Court, arguing that CPUC’s demand that they turn over subscriber data to TURN conflicts with (and is therefore preempted by) federal law.  The court granted a temporary injunction pending resolution of the dispute.

Judge Chhabria’s Opinion

In his opinion, Judge Chhabria rejected the companies’ motion for summary judgment, concluding that federal law does not necessarily preempt a state commission from requesting that companies submit relevant data to appropriate third parties as the commission conducts an investigation.

In arguing that federal law preempts the CPUC request, the companies relied on the Telecommunications Act of 1996, which governs the FCC’s collection of subscriber data through FCC Form 477. Specifically, the companies pointed out that under 47 C.F.R. § 1.7001(d), state commissions are prohibited from disclosing the confidential information gathered under the Form 477 program.  States cannot get around this prohibition, the companies argued, simply by ordering the companies to disclose the information themselves.

Judge Chhabria distinguished the CPUC request in two ways:  first, Judge Chhabria observed, when the FCC prohibits “disclosure,” the FCC generally is referring to disclosure to the public, rather than disclosure to a third party that has intervened in a lawful regulatory investigation. Second, he reasoned, the regulation the companies relied on governs the disclosure of information submitted through Form 477, and there is no indication that the regulation also was meant to govern the ways in which states gather similar information through their own investigations.  Moreover, Judge Chhabria pointed out, the FCC itself permits similar disclosures to relevant third parties when conducting its proceedings, making it unlikely that states would be prohibited from doing the same in the course of their own investigations.

However, Judge Chhabria also rejected the motion for summary judgment filed by CPUC and TURN.  Judge Chhabria reasoned that although FCC regulations do not prevent CPUC from requesting companies to disclose subscriber data to TURN, FCC regulations do preempt state orders that stand in opposition to the “accomplishment of a federal purpose.”  One key purpose of FCC regulations is to protect companies from competitive harm they could suffer if competitors gained access to confidential subscriber data, and CPUC and TURN have yet to demonstrate that subscriber information will be adequately protected by the proposed protective order.  Thus, Judge Chhabria concluded, CPUC and TURN first must demonstrate the adequacy of the protective order under which such information will be shared before companies are required to comply with the disclosure request.

Next Steps

The parties must submit a case management statement with their views on the adequacy of the protective order by November 15, 2016, and a telephonic case management conference will take place on November 22, 2016.