While Bexis is on vacation, here is a guest post to take up some of the slack.  Our guest blogger today is Henry Pietrkowski, a partner in Reed Smith's Chicago office.  This one's a little different.  It's about the impace of a 1991 federal statute prohibiting unrequested faxes, and how it could impact on pharmaceutical promotional activities that send faxed information to healthcare providers.  As always, our guest bloggers deserve all the credit, as well as any blame, for their posts.  Here goes.

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Scottish inventor Alexander Bain is credited with inventing the first fax machine in 1843 – an “Electric Printing Telegraph.”  By 1846, Bain was able to reproduce graphic signs in laboratory experiments by synchronizing the movement of two pendulums to transmit a message across a wire.  But it was not until over a century later, in 1964, that the Xerox Corporation introduced the first commercialized version of the modern fax machine. From there, faxes became ubiquitous.  They provided a standardized method of communication used worldwide, and their validity as a method of transmission was adopted by the business world.  By the 1980s, faxes had become widely used as a form of marketing.  Why pay the cost of postage to send an advertisement when the advertiser could use the recipient’s own paper and toner to print it?

It was at this point that Congress stepped in by passing the Telephone Consumer Protection Act of 1991 (the “TCPA”).  Among other alleged telemarketing abuses, the TCPA specifically prohibits the use of a “telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.”  47 U.S.C. § 227(b)(1)(C).  To ensure that businesses took the Act seriously, Congress imposed a minimum statutory damage award of $500 per fax regardless of the sender’s intent, and up to $1,500 for a knowing or willful violation of the statute.  Id. at § 227(b)(3).  Senator Ernest Hollings, who sponsored the bill, expressed his hope that violations of this law could be enforced by aggrieved individuals in small claims court where counsel would not be needed. 

As it turns out, however, it was the clients who would not be needed.  Instead, plaintiffs’ class action attorneys have filed hundreds of class action lawsuits alleging violations of the TCPA’s fax provisions, calling them “junk fax” or “blast fax” cases.  These lawsuits have resulted in hundreds of millions of dollars being paid to the plaintiffs’ class action bar, with actual fax recipients receiving relatively little compensation.  One the primary targets in recent years has been pharmaceutical and medical device companies.

But wait a minute (you say), no one uses faxes anymore.  We have email and websites and a million other ways of using computerized technology to engage in marketing communications. Not true – at least not in the pharmaceutical/medical device industry.  The reason is simple:  doctors love faxes, and pharmacies love them too.  Yes, for some strange reason, doctors and pharmacies still prefer this antiquated communication method from the Industrial Revolution over email, web portals and computers.  Some surmise that doctors believe fax transmissions are more secure and ensure greater privacy for patients.  Maybe they just like the palpable feel of paper crackling in their hands. Regardless of the reason, however, the fax is alive and well among doctors and pharmacies.  And as a result, pharmaceutical and medical device companies are still using faxes to communicate with them.

And if you’re wondering whether your company uses faxes, here’s some food for thought.  As a TCPA class action defense lawyer, many of the cases I’ve encountered arise from a variant of the following scenario:  Pharma/medical device company has a new drug or device that it wants to bring to market.  An individual (or team) in the marketing department is assigned to this task.  He or she retains an outside marketing consultant to find out the “best practices” for marketing that product to doctors or pharmacies in particular geographic areas or specialties.  The marketing company proposes a variety of marketing methods, one of which is faxes. The vendor promises to obtain a list of physicians and take care of all the details.  Usually, there is no discussion about compliance with the TCPA; when there is, the vendor gives it short shrift, saying that it has sent faxes many times in the past and never encountered a problem.  A few months (or up to four years)  later, the company is hit with a TCPA class action lawsuit. 

Perhaps you are one of the lucky few companies with a centralized marketing team who runs every detail of every promotion by the legal team for a full TCPA compliance review.  Most companies don’t fall into this category, however.  They conduct compliance reviews, but those reviews are aimed at FDA regulations.  They leave it to the marketing companies and vendors to deal with TCPA compliance.  That could be a big mistake.

Despite being a strict liability statute, however, there are a number of defenses that pharma/medical device companies can raise to a TCPA fax claim.  I will briefly discuss three of them here:  (1) the faxes are not “advertisements”; (2) the faxes are not “unsolicited”; and (3) the company is not vicariously liable for the vendors’ actions.

Is the fax an “advertisement?”

The TCPA prohibition on faxes applies only to “unsolicitedadvertisements,” which the TCPA defines in relevant part as “any material advertising the commercial availability or quality of any property, goods, or services . . . .”  47 U.S.C. § 227(a)(5).  A spate of litigation has ensued over the scope of this definition as well as what evidence can be considered in deciding whether a fax contains an “advertisement” under the TCPA. 

The Sixth Circuit recently weighed in on this issue, holding that a pharmacy benefit manager’s faxes encouraging providers to “consider prescribing plan-preferred drugs” on its formulary was not an “advertisement” under the TCPA.  Sandusky Wellness Ctr., LLC v. Medco Health Solutions, Inc., ___ F.3d ___, 2015 WL 3485900, at *1-2, 4-5 (6th Cir. June 3, 2015).  The Sixth Circuit found it essential to the term “advertisement” that the faxes involve buying or selling property, goods or services for a profitId. at *3, 5.  Because the pharmacy benefit manager was not out to make a profit, but merely to inform the provider what drugs its clients might prefer in order to save them money, the faxes were not “advertisements.” Id. at 4-5.  The Sixth Circuit further held that its analysis was limited to the face of the fax itself rather than extrinsic evidence that the sender of the faxes might gain some “hypothetical benefit later on.”  Id. at 6.

In another recent case, a federal district court dismissed the plaintiff’s TCPA claim where it found that faxes about reclassifying a drug for insurance purposes were informational with only “an incidental amount of commercial material.”  Physicians Healthsource, Inc. v. Jannsen Pharma., Inc., No. 12-2132 (FLW), 2013 WL 486207, at *1 (D.N.J. Feb. 6, 2013).  The court found that the “potential to gain some benefit from sending information, without the presence of additional commercial statement in the message, is insufficient to transform an informational message to an advertisement.”  Id. at *4.  However, after granting the plaintiff leave to amend its complaint to state additional facts regarding the timing and nature of the faxes at issue, the court subsequently denied the defendant’s summary judgment motion on the “advertisement” issue, leaving it for the trier of fact to decide.  Physicians Healthsource, Inc. v. Jannsen Pharma., Inc., No. 12-2132 (FLW-TJB), 2015 BL 196108 (D.N.J. June 19, 2015).

Other recent federal court decisions involve faxes inviting physicians to “free” seminars regarding a new drug or medical device.  Courts have studied these faxes on a case-by-case basis to determine whether or not they are “advertisements” under the TPCA.  See, e.g.Physicians Healthsource, Inc. v. Stryker Sales Corp., ___ F. Supp. 3d ___, 2014 WL 7109630, at *5-10 (W.D. Mich. Dec. 12, 2014, as amended Jan. 12, 2015) (finding issues of material fact precluding summary judgment as to whether a fax that featured a picture of an implantable device and offered a free steak dinner to attendees was an “advertisement” under the TCPA).

Is the fax “unsolicited?”

The TCPA prohibition on faxes applies only to “unsolicitedadvertisements,” which means that it must be “transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise.”  47 U.S.C. § 227(a)(5).  Determining whether the named plaintiff consented to the fax at issue is often the first order of business for a class action defendant.  But even if the named plaintiff did not consent, individual issues of consent among the putative class members can be a potent defense to a class certification motion.  See, e.g.Gene & Gene LLC v. Biopay LLC, 541 F.3d 318, 326-29 (5th Cir. 2008) (reversing district court’s class certification order where “evidence show[ed] that some of the fax advertisements it sent were solicited by the recipients, but which ones can only be decided on a case-by-case basis”).

Where the evidence demonstrates, however, that the faxes at issue were sent en masse without any attempt to obtain prior express consent from any fax recipients, courts generally have certified such classes.  See, e.g.Chapman v. Wagener Equities, Inc., No. 09 C 07299, 2014 WL 540250, at *15 (N.D. Ill. Feb. 11, 2014) (“defendants have identified no basis to believe that this case will be different than the ‘normal’ § 227 class action in which the common issues arising from the near-simultaneous transmission, by the same defendant, of the same unsolicited fax predominate”). 

A statutory exception does exist for faxes sent to those with whom the defendant has an “established business relationship.” 47 U.S.C. § 227(b)(1)(C).  However, that exception is much more limited than companies often believe.  It is not enough to simply have an “established business relationship” with the recipient. The fax number must also have been received in a particular way and, more importantly, the fax must contain specific opt-out language required by the statute and its regulations.  Courts have held that the failure to include this opt-out language is itself a violation of the TCPA that creates a common issue for class certification.  See, e.g.A Aventura Chiropractic Ctr., Inc. v. Med Waste Mgmt. LLC, No. 12-21695, 2013 WL 3463489, at *4 (S.D. Fla. July 3, 2013).  In the pharma/medical device context, issues arise regarding whether doctors have consented to receive faxes, or created established business relationships, by agreeing to be part of certain professional associations, such as the AMA.  See, e.g.Stryker Sales, 2014 WL 7109630, at *11-13 (refusing to find that plaintiff’s participation in AMA’s physician database was sufficient to establish consent to receive advertising faxes from third parties).  Again, this is an evolving area of the law that suggests that caution be used in determining whether consent has been obtained before any faxes are sent.

 Is the company liable for the acts of its vendors?

Another litigation battleground in blast fax class action lawsuits involves the extent to which companies may be liable for the acts of third-party vendors who sent the faxes at issue.  While the FCC has opined that the telemarketing portions of the TCPA are subject to the federal common law of agency, the FCC has refused to apply the same standard to faxes.  See Bridgeview Health Care Center v. Clark, No. 09 C 5601, 2015 WL 1598115, at *4-5 (N.D. Ill. Apr. 8, 2015), appeal filed 7th Cir. Apr. 13, 2015. In a letter to the Eleventh Circuit, the FCC stated that the relevant standard for faxes is embodied in the FCC’s definition of the term “sender”: “the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements.”  Id. at *5.

Courts have struggled with how to apply this definition.  Does it literally mean that a company whose products are advertised by fax is strictly liable for those faxes even if the company did not know they were being sent?  At least one federal district court found this interpretation to be “absurd,” reasoning: “[t]o conclude that a defendant is always liable for faxes advertising her goods or services would allow an overzealous third party to expose a defendant to substantial liability without notice or without receiving any direction to do so.  This sort of universal liability does not appear to have been contemplated by Congress.”  Id. at *7.

We hope this helps you to spot potential problems that can arise from sending faxes to physicians, pharmacies or other health professionals without obtaining prior consent or ensuring that the technical requirements of the “established business relationship” exception have been met.  A thorough compliance review is highly recommended.  And if you have been sued, please contact an attorney who is experienced with the ever-changing legal landscape of the TCPA.