United States: Court Limits 2015 Text Marketing Rules, Gives New FCC An Opportunity To Provide Clarity

On March 16, the D.C. Circuit issued a long-awaited decision in a challenge to the Federal Communications Commission's July 10, 2015 Declaratory Ruling and Order regarding the Telephone Consumer Protection Act (the July 2015 Order). We have previously explained the challenges created by the July 2015 Order here and here.

On the whole, the unanimous 3-0 Decision offers some good news for businesses: the court struck down the FCC's broad definition of "autodialer" (or ATDS) as unreasonably and impermissibly expansive, and held that the FCC's interpretation of ATDS functionality was so lacking in clarity as to fail the requirement of reasoned decision-making. The court also found that the FCC's liability approach for calls to reassigned numbers unintentionally contacted by advertisers with the prior subscriber's consent was arbitrary and capricious. However, the Decision upheld the FCC's positions that consumers must be able to withdraw consent to telemarketing by any reasonable means, as opposed to only certain manners designated by the advertiser, and upheld the limited scope of exemptions for healthcare messages.

At the end of 2016, the FCC issued an advisory on text messaging, but as we wrote at the time, the advisory left advertisers struggling with how to comply with the very issues addressed by the court last week. Although the Decision vacates certain parts of the July 2015 Order, it leaves those issues unsettled for the FCC to reconsider and open to interpretation by trial courts. Given that the FCC majority has shifted to the Republicans and former Commissioner Pai, who dissented from much of the July 2015 Order, is now the Chairman of the FCC, industry is likely to obtain better results when the FCC revisits the rules. The court's 51-page Decision provides some suggestive guidance regarding how to approach these issues in the next effort.

The most significant aspect of the Decision involves the definition of autodialer. Only text messages sent via an autodialer are governed by the TCPA. The act defines an ATDS as "equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers." 47 U.S.C. Section 227(a)(1). The language left ambiguity around the meaning of "capacity," as well as what functionality constitutes the actions described in (A) and (B). The petitioners took on both issues, and the court found the July 2015 Order lacking on both counts.

  • The FCC had rejected the industry position that "capacity" should be measured by present capacity in a current configuration without modification, determining that "potential functionality" and "future possibility" were enough to establish capacity. This frustrated the ability of telemarketers to enable or disable calling equipment depending on the nature of the communication, and forced them to comply with the more burdensome consent requirements applicable to use of an ATDS in all cases. The court found the FCC's rulemaking "arbitrary and capricious" with respect to its interpretation of "capacity" as the Commission had failed to articulate a reasonable and comprehensible standard, essentially qualifying all smartphones as autodialers.
  • As for the FCC's interpretation of the content and scope of the regulated functionality of an ATDS, the court found the FCC's ruling internally inconsistent and lacking in clarity such that "affected parties are left in a significant fog of uncertainty about how to determine if a device is an ATDS so as to bring into play the restrictions on unconsented calls."

The court also struck down the July 2015 Order's approach to calls to reassigned numbers. The court did uphold the FCC's finding that the statutory definition of "called party" means the current subscriber, not a previous subscriber who had consented to the communication and was the intended recipient of the call – provided the advertiser lacked knowledge of the number reassignment. But the court invalidated the FCC's one-call "safe harbor" from strict liability for a single unintentional call/text, ruling it "arbitrary and capricious" because no reasoning was given as to why reasonable reliance would cease after a single call, or why the one-call exception was perpetual, inconsistent with the notion callers could learn of reassignments over time. In short, the court agreed that called party means the current subscriber, but struck the safe harbor, theoretically creating the potential for telemarketers to face strict liability from the moment a number is reassigned. To avoid that outcome, the court invalidated all of the July 2015 Order's consideration and treatment of reassigned numbers, noting that the FCC had declined to adopt a zero-call strict liability approach and also noting that the FCC is already working on alternative ways to regulate reassigned numbers.

The petitioners fell short with the court on their two remaining issues: (1) methods for opting out, and (2) the scope of exemption from the TCPA for certain types of calls. The court upheld the FCC's prohibition on limiting opt-out methods and requiring advertisers to honor consent revocations given by any reasonable means. Thus, advertisers cannot limit opt-outs to replying STOP or QUIT; they need to address unrecognized replies that might reasonably indicate an opt-out and otherwise accept reasonably given opt-outs such as requests to customer service. The court also let stand the July 2015 Order's treatment of a healthcare text exemption from TCPA consent requirements; such texts must be limited to critical health messages and not healthcare-related marketing or collection messages.

At least until the FCC can promulgate new rules, the Decision likely will force trial courts adjudicating TCPA class actions to turn to principles of statutory interpretation when evaluating issues that are the subject of the invalidated FCC determinations. We will be watching how both courts and the FCC address these matters in the coming months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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