In a development that many telemarketers will want to follow closely, the Soundboard Association (SBA) recently filed a complaint against the Federal Trade Commission (FTC) in the U.S. District Court for the District of Columbia. The SBA simultaneously asked the court to issue an injunction blocking the FTC from expanding the Telemarketing Sales Rule’s (TSR) prerecorded message restrictions to outbound calls that utilize soundboard technology. In a November 2016 letter, FTC staff indicated that it planned to do just that – effective May 2017 – in what was a reversal of the Commission’s previously stated views about whether soundboard technology is subject to the TSR’s prerecorded call provisions. This lawsuit is a significant challenge to FTC action that was not vetted by public stakeholders during a notice and comment period and, if left to stand, will have potentially dire consequences for telemarketers who use soundboard to facilitate outbound sales calls or calls seeking charitable donations.

A Primer on Soundboard Technology

Telemarketers and fundraisers who utilize soundboard technology record numerous scripted audio files (in some cases hundreds of thousands of them) that may be selected and played while the call agent interacts in real-time with a customer or donor. Having a large and diverse arsenal of sound files at its disposal allows a telemarketer to respond to virtually any customer question, statement, or request utilizing the technology, rather than having to rely on the call agent’s natural voice. Some sound files, for example, provide prompt introductory disclosures to the call recipient (“Hi, this Company X calling with a great offer”), others react appropriately to customer instructions (“Sure, I’ll add you to our do-not-call list right away”), and others are intended to make the call feel more natural and conversational (“uh huh,” “yeah”).

A key feature of soundboard technology is that a live human being is always attending to the call, listening to the recipient’s dialogue, and choosing the most appropriate sound file to deploy in order to move the call along. If the customer or donor asks a question or makes a statement for which no recorded audio file exists, the live call agent can intervene in the call in real-time and speak using his or her natural voice. This is different from a traditional “robocall,” which is a purely automated message that plays from beginning to end without the influence of a human operator and with disregard to the questions or comments of the listener. The distinction between soundboard-assisted telemarketing calls and “robocalls” lies at the heart of the SBA’s lawsuit.

The TSR’s Prerecorded Message Restrictions and the FTC’s About-Face

In 2008, the FTC amended the TSR by prohibiting outbound telemarketing calls that deliver a prerecorded message without the call recipient’s express written authorization permitting the seller to place the call. This prohibition also applies to for-profit charitable fundraisers who “cold call” prospective first-time donors to a charity. Moreover, even when the seller or fundraiser has the call recipient’s prior agreement to receive prerecorded message calls, they must provide a mechanism that allows the call recipient to assert a do-not-call request. Suffice it to say, the TSR has been inhospitable to telemarketers to deliver prerecorded messages or “robocalls” for much of the past decade.

In 2009, however, FTC staff publicly recognized the difference between impermissible “robocalls” and calls made using soundboard technology for TSR purposes. It wrote that “the staff of the Federal Trade Commission has concluded that the 2008 TSR amendments . . . do not prohibit telemarketing calls using this [soundboard] technology if the calls [ ] otherwise comply with the TSR and other applicable law.” Staff believed that the constant human presence during soundboard calls – and consequent ability of the telemarketer to respond to do-not-call requests and/or terminate calls at any time – sufficiently distinguished soundboard assisted telemarketing calls from the impersonal “robocalls” that were truly the target of the TSR’s prerecorded message restrictions.

Since 2009, makers and users of soundboard have unsurprisingly invested heavily in the technology, believing its usage to be in compliance with the TSR. That changed this past November, though, when FTC staff (indeed, the very same author of the 2009 letter) announced that it was revoking its 2009 letter and giving the soundboard industry six months – until May 12, 2017 – to “bring themselves into compliance” with the TSR’s prerecorded message restrictions. FTC staff’s change of heart was apparently triggered by the Commission’s receipt of increased consumer complaints regarding soundboard assisted calls.

A key question raised in the lawsuit is whether the FTC’s abrupt about face is tantamount to a change in the TSR. As an administrative agency, the FTC cannot simply “change the law” with a stroke of the pen. The Administrative Procedures Act (APA) requires that proposed substantive changes to the Commission’s rules must be published in the federal register and subject to a public comment period before being enacted. Indeed, each of the prior TSR amendments that occurred in 2003, 2008, 2010, and 2015 (the most recent of which we blogged about here) went through a notice and comment procedure. When staff announced its intention to broaden the reach of the TSR’s prerecorded message restrictions to soundboard users, by contrast, it did so in a letter edict.

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The SBAs suit alleges that FTC staffs actions violate the APA (by enacting a final and binding law change without notice and comment) and the First Amendment (by enacting a content-based restriction on charitable fundraising speech). The FTCs response to SBAs preliminary injunction request is due on February 17, and SBAs reply is due on February 24. We expect the court to hold a preliminary injunction hearing in mid-March. Telemarketers who currently utilize soundboard technology or have considered investing in it should work with their counsel to prepare for the impending storm.