On June 19, the U.S. Court of Appeals for the Ninth Circuit decided Satterfield v. Simon & Schuster (No. 07-16356), which clarified the application of the Telephone Consumer Protection Act (TCPA) to text message marketing. The Satterfield decision is the first federal appellate decision to apply the TCPA to text messaging.
The TCPA prohibits using an automated dialing system to place a telemarketing call to a mobile device without the user's "prior express consent." In Satterfield, the plaintiff had registered the device's phone number with Nextones while downloading a free ringtone. Subsequently, the plaintiff received a text message from Simon & Schuster advertising the publication of a recent novel by Stephen King. The last phrase of the message read: "PwdByNexton," which the court interpreted to mean "Powered by Nextones." Simon & Schuster had obtained the number via a mobile marketing firm, which licensed a list of numbers, including Satterfield's, from Nextones.
The district court had granted summary judgment to Simon & Schuster. The district court ruled that the dialing device was not an "automated dialing system" under the TCPA; that a text message is not a "call" under the TCPA; and that the recipient had consented to receive the promotion when she registered the device while obtaining a new ringtone.
On appeal, the Ninth Circuit reversed. The Court of Appeals held that:
- The construction by the Federal Communications Commission (FCC)—the expert agency charged with enforcing the TCPA—of the TCPA to include a text message as a "call" was a reasonable construction of the statute and deserved deference;
- Under the TCPA, an autodialer includes equipment with the "capacity" to generate random or sequential numbers, whether or not that capacity is in use; and
- There was no express prior consent where customers agreed to receive messages from a Nextones.com "affiliate" or "brand," and the messages sent were from a company with no corporate relation to the sender and were not part of any brand associated with Nextones.
On this last point, the Court of Appeals held that following a message with the phrase "powered by Nexton" (or Nextones) was insufficientto "brand" the message as coming from Nextones. Because the record was not clear on the autodialer issue, the Ninth Circuit remanded the case for further proceedings to determine whether the device used to place the calls had the "capacity" to generate random or sequential numbers (as distinct from the ability to dial a list of pre-programmed numbers).
The case is interesting for several reasons, not the least of which is that it is the first Court of Appeals' decision to address the FCC's construction of the TCPA to apply to text message marketing, although the issue had arisen in a few trial courts. Perhaps the most important aspect of the decision is the affirmation of the FCC's position that a text message is a "call" subject to the TCPA. However, this ruling may not have wide market impact, because most companies already treat text messages as "calls" for TCPA purposes, and the Mobile Marketing Association's Consumer Best Practices Guidelines also assume texts are "calls" under the TCPA. For most companies, this aspect of the decision will not require a change in conduct.
Second, the Ninth Circuit's holding that the definition of "automatic dialing system" broadly includes any equipment with the "capacity" to generate random or sequential numbers for sending messages (whether or not it is actually used in that way) is also not new for most companies, but may be new to some taking a more aggressive posture. To the extent a company was relying solely on the argument that the equipment it was using was not an "automated dialing machine" as defense against a TCPA claim, the court's decision would require a change in practice, at least in the states within the Ninth Circuit.
Scope of Clarity of Notice
Third, to the extent companies have obtained customer opt-in consent to receive messages from "affiliates" or "brands," companies should review their practices to confirm that the source of the messages is an "affiliate" or "brand" under the Ninth's Circuit's definition of those terms. In particular, companies that send messages on behalf of third parties and rely on an identification of the source of the message, such as "powered by XXX," to insulate themselves from TCPA liability should review their practices to make sure the scope of customer consent is sufficiently broad to include these messages. Conversely, advertisers should ensure that their message is within the scope of the consent given previously by the device user.
This aspect of the decision highlights a potential tension between certain established practices in the mobile advertising industry and a device user's expectations. The mobile marketing industry often relies upon "affiliate" or "partner" marketing arrangements that do not involve any common equity ownership or shared brand name. These practices resemble those seen in the downloadable software industry, in which downloads often occur through "affiliate" arrangements.
On the other hand, users may not necessarily expect that the act of downloading a ringtone from one company will result in receiving unrelated ads from unrelated companies, even if accompanied by a "powered by" notice. Accordingly, going forward, marketers would be wise to be scrupulous in disclosing that receipt of third-party advertising is a condition of service and ensure clear phrasing of notices when consent is being solicited. For example, it is conceivable that the Satterfield appellate court might have ruled differently had the Nextones solicitation clearly indicated that users would receive book advertisements.
Although technically, the Ninth Circuit's decision applies only in its region, the case is likely to have nationwide influence, because it is consistent with the FCC's interpretation of the statute. Going forward, advertisers and the mobile marketing industry will need to take steps to ensure that the "prior express consents" obtained for text marketing messages indeed constitute consents to the particular messages that are received. In the case where the advertiser is a different entity from the one that obtained the consent, this will involve consideration of both the wording of the notices and of how the notices are presented. Where a business obtains consents to its own text marketing, the main issue will be the clarity of the notice. In either case, legal counsel should be consulted for advice as to how to seek and obtain proper consents.