D.C. District Court Upholds FTC Staff’s Decision To Reverse Course On Soundboard Telemarketing Technology

Not all automated voices are created the same. At least that is what the FTC staff had signaled to the telemarketing industry in a September 2009 opinion letter stating that telemarketing calls using “Soundboard” technology were not subject to the 2008 amendments to the Telemarketing Sales Rule (TSR), 16 CFR § 310.4(b)(1)(v), also known as the “Robocall Rule.” Among other things, the Robocall Rule prohibits the use of prerecorded messages on telemarketing calls unless the recipients had agreed in writing to receive them.

Traditional robocalls, which are subject to the Rule, play a one-way message with no live sales agent or other human interaction. Soundboard technology, on the other hand, involves a form of two-way communication in which a sales agent selectively plays pre-recorded messages in response to the consumer’s verbal statements. The sales agent can also choose to intervene and speak directly with the consumer. Thus, if a consumer asks for more information about the product, the sales agent may play a pre-recorded message addressing that subject or choose to speak to the consumer directly. So while Soundboard still uses pre-recorded audio, there is a degree of human interaction. Think of it as somewhere between an entirely pre-recorded sales call and an actual live conversation.

Because the Robocall Rule requires the consumer’s written consent and imposes several other restrictions on using pre-recorded sales messages, it rendered marketing via traditional prerecorded sales calls prohibitively expensive. Shortly after the Rule went into effect, and in response to inquiry from telemarketers using Soundboard technology, the FTC staff’s September 2009 letter stated the Robocall Rule would not apply to Soundboard technology since it involves a live sales agent who controls the content and continuity of what is said in response to the consumer’s statements.

So users of Soundboard telemarketing were able to breathe a sigh of relief. At least until seven years later, when the FTC changed its mind.

Following the September 2009 letter, the FTC saw increasing consumer complaints that Soundboard calls were not playing appropriate responses to consumers’ questions, that live sales agents were not intervening, and that sales agents were handling more than one call at a time. This undercut the FTC staff’s rationale behind its September 2009 letter. Following further investigation, the FTC staff announced in a November 10, 2016 letter that it was revoking its prior opinion and now considered Soundboard technology subject to the Robocall Rule. The FTC staff’s main rationale was that Soundboard calls do, in fact, use pre-recorded messages and are therefore subject to the Rule. However, the staff left no doubt that “the increasing volume of consumer complaints, and the abuses we have seen since we issued the September 2009 letter” were a driving force behind the reversal. The 2016 letter gave the telemarketing industry six months to adjust, stating the new opinion would become effective on May 12, 2017.

On January 23, 2017, the Soundboard Association filed suit in the U.S. District Court for the District of Columbia to challenge the 2016 letter opinion, styled Soundboard Association v. U.S. Federal Trade Commission, No. 17-cv-00150 (APM) (D.D.C.). The complaint first alleged the 2016 opinion was a “legislative rule” that, under the Administrative Procedures Act, the FTC was required to promulgate through notice and comment, which it did not do. The complaint also alleged the 2016 opinion effects a content-based speech restriction in violation of the First Amendment, because the Robocall Rule (to which Soundboard calls are now subject) applies to solicitations for charitable contributions directed to first-time donors, but expressly excludes such solicitations made to people who previously donated to, or are members of, the charity in question. See 16 CFR § 310.4(b)(1)(v)(B). According to the Soundboard Association, that carve-out improperly restricts speech based on what the caller says during the call – namely, whether the caller requests a first-time charitable donation or a repeated donation.

In an April 24, 2017 opinion, the district court rejected both arguments, granted the FTC’s motion for summary judgment, and denied the Soundboard Association’s cross-motion for summary judgment. The court first explained that the 2016 opinion is not a legislative rule that must be promulgated through notice and comment because it does not supplement or effect a substantive change in the Robocall Rule. Instead, the court held the 2016 opinion is an “interpretive rule” because it only communicates the FTC staff’s interpretation, based on new evidence, that Soundboard technology falls within the Rule’s existing restrictions on prerecorded messages. The district court described the nature of the FTC staff’s conclusion – that an existing regulation now applies to a particular form of telemarketing technology as currently used by the industry – as a “quintessential interpretive rule” which does not require notice and comment. Soundboard Association v. FTC, 2017 WL 1476116, at *11 (D.D.C. Apr. 24, 2017), appeal docketed, No. 17-5093 (D.C. Cir. Apr. 28, 2017).

The court then held the Robocall Rule’s carve-out for charitable solicitations to prior donors or current members does not create a content-based speech restriction. Instead, the restriction is content-neutral because it turns on who the recipient is – a first-time donor or a prior donor – not what is said. Id. at *13-14.

The Soundboard Association has appealed the district court’s decision to the D.C. Circuit. Stay tuned to the KTS Class Action Blog for updates on where this issue comes out.

Takeaway:

For the time being, telemarketers using Soundboard technology have until May 12, 2017 to ensure they comply with the TSR’s provisions (16 CFR § 310 et seq.) applicable to the use of pre-recorded messages. Companies using this technology should carefully review the TSR, stay apprised of developments in the Soundboard Association’s appeal, and seek legal advice regarding any compliance questions.