• First Amendment Challenges to Restrictions on Telemarketing and Marketing to Kids: FTC to Enforce National Do Not Call Registry and Supreme Court to Review Child Online Protection Act
  • November 19, 2003
  • Law Firm: Fulbright & Jaworski L.L.P. - Austin Office
  • FTC To Enforce National Do Not Call Registry

    On October 7, 2003, the United States Tenth Circuit granted the Federal Trade Commission's (FTC) request to stay the order that enjoined the enforcement of the National Do Not Call Registry. The ruling temporarily stays the order of a Colorado district court, which held that the Registry provisions of the Telemarketing Sales Rule (TSR) were in violation of the First Amendment. The FTC has appealed the District Court's decision, and the stay will remain in effect pending review of that decision by the Tenth Circuit, thereby allowing the FTC to proceed with the Registry while the appeal is pending.

    Background On The Registry

    In January of 2003, the FTC published its final rules amending the TSR and creating the National Do Not Call Registry under the authority Telemarketing and Consumer Fraud and Abuse Prevention Act1. On February 13, 2003, Congress passed and the President later signed the Do Not Call Implementation Act, which authorized the FTC to collect fees from sellers and telemarketers in order to implement and enforce the provisions relating to the Registry.

    The amended TSR creates an established business relationship exception to the National Registry provisions so that a company may call a consumer with whom it has such a relationship, provided the consumer has not asked to be on the company's own Do Not Call list. An established business relationship may be one of two kinds2. The first is based on the consumer's prior business transaction with the company and extends for 18 months from the date of the last payment, transaction or shipment3. The second is based on the consumer's inquiry or application regarding a company's goods or services and extends for three months from the date of the inquiry or application4. In addition, the Do Not Call Registry provisions do not apply to calls soliciting charitable contributions5.

    Companies that violate the TSR, including disregarding the Registry provisions, may be fined up to $11,000 per call.

    Legal Challenges

    On September 24, 2003, a federal judge in Oklahoma ruled that the FTC had overstepped its authority in creating the National Do Not Call Registry. Specifically, the Court found that the FTC lacked a valid grant of authority from Congress to promulgate the regulations creating the Registry.

    This decision was quickly rendered moot by Congress the following day with the passage of a bill which authorized the FTC to implement the Registry. But later that same day, a federal court in Colorado held that a Do Not Call Registry allowing consumers to avoid receiving commercial telemarketing calls was unconstitutional because non-commercial calls (specifically those from charities) are exempt. The Court found that the Registry amounts to a content-based restriction on lawful and truthful commercial speech, which is protected by the First Amendment. In addition, the Court also determined that while there was a substantial government interest in preventing abusive telemarketing practices the Registry, because it burdens one type of speech based solely on content, does not materially advance the government's interest in protecting privacy and curbing abusive telemarketing practices.

    The following day, the FTC filed an appeal of the court's decision and filed a motion for an emergency stay of that portion of the Court's order that permanently enjoined the FTC's enforcement of the Registry. On October 7, 2003, the Tenth Circuit granted the FTC's request to stay the order.

    Accordingly, the FTC re-opened the Registry to consumers Thursday, October 9 at www.telemarketing.donotcall.gov, and companies have been able to access the registry at www.telemarketing.donotcall.gov since Friday, October 10. The FTC reports that 54 million telephone numbers have been registered with the National Do Not Call Registry to date, and registered consumers have filed more than 63,000 complaints against telemarketers. For enforcement purposes, consumer complaints received into the FTC databases are made available to more than 800 law enforcement agencies, including the offices of all State Attorneys General.

    Other Provisions Of The Telemarketing Sales Rule Not Affected

    Notwithstanding the continuing legal challenges to the Registry, the company-specific do not call provisions of the TSR have remained in effect. That means that, regardless of the legal status of the Registry, companies may not call consumers who ask them not to call. The company-specific do not call rules also apply to all telemarketing calls, including those made to consumers with whom the company has an "established business relationship." In addition, the non-do not call provisions of the TSR are also still in effect. For example, companies must connect all outbound calls to a representative within two seconds of a consumer's completed greeting, or meet the safe harbor requirements for abandoned calls, which require, among other things that a company not "abandon" more than three percent of their telemarketing calls per day6. In January, telemarketers will also have to comply with the TSR rules concerning the transmission of caller identification information. 7

    Safe Harbor Provisions

    In the TSR, the FTC has provided a "safe harbor" for telemarketers that have made a good faith effort to comply with the Do Not Call Registry8. A company, or the entity telemarketing on behalf of the company, will not be liable for violating the Registry rules if it can demonstrate that its routine business practices include:

    • Written procedures to comply with the Registry rules;

    • Training for personnel, and any entity assisting in its compliance, with respect to the Registry rules;

    • Maintaining and recording a company-specific Do Not Call list;

    • A process that prevents calls to numbers on the Registry by employing a version of the Registry obtained from the FTC no more than three months prior to the date any call is made;

    • Monitoring and enforcement of compliance with the aforementioned written procedures; and

    • Any subsequent call otherwise violating the Registry rules is the result of error9.

    State Do Not Call Registries Not Effected, Unless Supreme Court Upholds District Court

    The decision in Colorado to enjoin the National Registry did not enjoin enforcement of those state Registries which operated under provisions that were similar to the National Registry, even though the First Amendment arguments would apply. However, if the decision of the Colorado court is eventually upheld by the Supreme Court, then that decision would apply equally to both state and federal Registries.

    Supreme Court To Review COPA

    The Supreme Court has agreed to review the Child Online Protection Act (COPA). COPA makes it a crime for anyone, by means of the World Wide Web, to make any communication for commercial purposes that is "harmful to minors," unless a good faith effort is made to prevent children from gaining access to the material. Violation of COPA may result in criminal and civil penalties of up to $50,000 per day.

    The Third Circuit declared COPA unconstitutional last March, finding that it was an overbroad restriction on free speech. It was the second time that the Third Circuit had invalidated the law.

    Background On COPA And The Legal Challenges

    In 1996, Congress passed the Communications Decency Act (CDA). The CDA prohibited Internet users from using the Internet to communicate material that, under contemporary community standards, would be deemed patently offensive to minors under the age of eighteen. The CDA was challenged by the American Civil Liberties Union (ACLU) as an unconstitutional violation of the First Amendment. Ultimately, the Supreme Court struck down the statute as an overbroad and vague restriction on protected free speech, and not sufficiently tailored to accomplish the government's interest in protecting children from harmful material.

    Congress attempted to address the Supreme Court's concerns with the passage of COPA, which was signed into law on October 21, 1998. The following day, the ACLU and others filed suit in a Pennsylvania federal court alleging that COPA violated the First Amendment and the Fifth Amendment and seeking injunctive relief from its enforcement. On February 1, 1999, the court issued a preliminary injunction against enforcement of COPA until a final decision was made about COPA's constitutionality. The Court found that while there was a compelling government interest in protecting children from obscene material, it was not apparent that the government would be able to meets its burden of showing that it had used the least restrictive means to achieve that goal.

    On June 22, 2000, the Third Circuit upheld the injunction against COPA. The decision turned on concerns about the constitutionality of COPA's use of undefined "contemporary community standards" to determine what material would be harmful to children. The Department of Justice asked the Supreme Court to review the decision, and on May 13, 2002, the Supreme Court reversed. The Supreme Court held that COPA's reliance on "community standards" to identify what material is "harmful to minors" does not by itself render the statute substantially overbroad for First Amendment purposes. However, the Supreme Court left intact the District Court's preliminary injunction against COPA, and remanded the case to the Third Circuit for review of the constitutional issues raised by COPA that the District Court had identified.

    On March 6, 2003, the Third Circuit unanimously upheld -- for a second time -- the District Court's injunction against COPA, on the grounds that it was "substantially overbroad" in that it places significant burdens on communication of speech that is constitutionally protected as to adults and adults' ability to access such speech, and fails to employ the least restrictive means to achieve the compelling governmental interest it purports to serve.

    1 The FCC enforces the Telephone Consumer Protection Act (TCPA), which also regulates telemarketing. The FCC's jurisdiction extends to some entities and activities that are not subject to regulation by the FTC under the TSR, such as entities that sell investments and are subject to the jurisdiction of the Securities and Exchange Commission. In July of 2003, the FCC published amended rules implementing the TCPA which also contain provisions concerning the Registry. In addition, many states also have laws regulating telemarketing. The FTC and the FCC are working to "harmonize" the various Do Not Call Registry requirements at the state and federal level.
    2 16 CFR §310.4(b)(1)(ii).
    3 16 CFR §310.2(n)(1).
    4 16 CFR §310.2(n)(2).
    5 16 CFR §310.6(a).
    6 16 CFR §310.4(b)(1) and (4).
    7 16 CFR §310.4(a)(7).
    8 The FCC has similar, but not identical, safe harbor provisions. See 47 CFR §64.1200(c)(2)(1.)
    9 16 CFR §310.4(b)(3).