In dismissing a challenge filed by an industry group, the D.C. federal district court has ruled that the Federal Trade Commission’s (FTC) position extending restrictions on robocalls to telemarketing calls making use of soundboard technology is constitutional and complied with applicable procedure.
First promulgated in 1995, the Telemarketing Sales Rule prohibits telemarketing calls at certain times of day, allows consumers to request placement on a “do not call” list, and imposes other requirements on telemarketers.
In 2008, the FTC amended the TSR to include new regulations on robocalls, most notably the requirement that telemarketers obtain written “express agreement” before initiating any outbound telephone call that delivers a prerecorded message. The written consent requirement does contain exceptions, including prerecorded calls made on behalf of charitable organizations to past donors or current members.
Before the amendments took effect, a telemarketing firm sent a letter to the FTC seeking clarification of whether soundboard calls would be subject to the revised TSR. Distinct from traditional robocalls, soundboard technology involves two-way communication between a sales agent and a consumer, where the sales agent plays prerecorded audio clips in response to the consumer’s statements. The technology also allows the sales agent to break into the call and speak directly to the consumer, if needed.
The agency responded with an “informal staff opinion” stating that “the staff of the [FTC] has concluded that the 2008 TSR Amendments … do not prohibit telemarketing calls using this technology.” This letter remained the FTC’s position on soundboard technology until last year.
In November 2016, the agency announced in a new letter that it now considered soundboard calls subject to the TSR’s robocall regulation. Over the intervening seven years, the FTC saw an increased number of consumer complaints about the improper use of soundboard technology, the agency said, such as consumers who were not receiving appropriate responses to their questions and comments as well as live operators not picking up calls when necessary.
To give the industry time to adjust, the agency announced that the revocation of the 2009 letter would take effect in May 2017. Industry group Soundboard Association responded with a federal court complaint challenging the commission’s switch in position. The group asserted that the 2016 letter is a legislative rule that the FTC was required to promulgate through the notice and comment process of the Administrative Procedure Act (APA) and that the new stance runs afoul of the First Amendment because it treats speech tailored for first-time donors differently than speech tailored for previous donors, an unlawful content-based regulation.
U.S. District Court Judge Amit P. Mehta was not convinced by either argument.
While he agreed that the 2016 letter was a final agency action—as a definitive position with an immediate and practical impact on the telemarketing industry to either achieve compliance or risk enforcement action—it was not a “legislative” rule requiring notice and comment.
Instead, the FTC’s letter is an “interpretive” rule, not subject to the demands of the APA, the court said. The letter began with an explanation of the history of the issue, cited to the relevant TSR provision, and announced that in light of newly acquired facts, the FTC would apply “the plain language of the rule” to cover soundboard calls.
“That determination does not supplement or effect a change to the statutory or regulatory scheme applicable to telemarketers,” the court wrote. “Rather, it communicates to the telemarketing industry the agency’s view that an existing regulation now applies to a particular form of telemarketing technology as currently used by the industry. That is a ‘quintessential interpretive rule.’”
Turning to whether the TSR amendment as applied to soundboard calls violates the First Amendment, the court said the FTC had the better argument that the robocall regulation’s distinction between charitable solicitations to existing donors or members and potential new donors is a content-neutral restriction.
“The robocall regulation does not require the FTC to review a call’s content to determine whether the written-consent requirement applies to a pre-recorded charitable call,” Judge Mehta wrote. “It need only determine whether the call’s recipient is either a potential first-time donor or a prior donor or member. If the recipient falls into the first category, then the written-consent requirement applies; if she falls into the second, then it does not. The distinction is plainly relationship-based and does not constitute a content-based restriction on speech.”
As a content-neutral restriction, the regulation “easily” satisfied intermediate scrutiny, the court found, as it was narrowly tailored to serve a significant governmental interest and left open ample alternative channels of communication (such as mailings and in-person solicitations).
To read the opinion in Soundboard Association v. FTC, click here.
Why it matters: The decision is a significant victory for the FTC. Telemarketers should ensure compliance with the agency’s new position on soundboard technology or face potential enforcement action. The decision also underscores the current unpredictability of courts reviewing agency action. While the D.C. Circuit recently invalidated the FCC’s Solicited Fax Rule, that decision does not seem to be an indication that the judiciary will be looking at agency action with a higher level of scrutiny.