Death of the EBR Exemption May Be "Greatly Exaggerated"
Junk Fax Prevention Act of 2004 (H.R. 4600) Introduced 6/16/04 Â– Codifies EBR Exemption Under TCPA Allowing Transmission of Unsolicited Fax Ads Where EBR Exists
In responding to news reports that he had died, Mark Twain is quoted as stating: "The reports of my death are greatly exaggerated." With due apologies to Mr. Twain, it appears that the death of the Established Business Relationship ("EBR") exemption may also be greatly exaggerated. On June 16, 2004 Rep. Fred Upton (R-MI) introduced H.R. 4600, The Junk Fax Prevention Act of 2004. This bill would amend the Telephone Consumer Protection Act ("TCPA") to create an exemption to the TCPA's ban on the transmission of unsolicited facsimile ads and would allow businesses to send unsolicited facsimile ads to those persons with whom they have an EBR. The bill has bipartisan support and was unanimously approved by the House Energy and Commerce Committee on June 24, 2004 and sent to the full House for consideration. A companion bill was introduced in the Senate on June 24, 2004 (S. 2603) and was referred to the Senate Committee on Commerce, Science and Transportation.
The TCPA Generally Bans Unsolicited Fax Ads
The TCPA provides generally that it is unlawful for any person to "use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine." 47 U.S.C. §227(b)(1)(C). It further provides that an individual may "if otherwise permitted" by state law, bring a private right of action for violation of the TCPA's ban on unsolicited facsimile ads and provides for recovery of actual damages or $500 per facsimile which may be trebled to $1,500 per facsimile for a knowing and willful violation. 47 U.S.C. §227 (b)(3). A cottage industry has arisen in filing TCPA unsolicited fax ad class actions. Since April 2002, there have been over 150 TCPA fax class actions filed in the Chicago area alone. Plaintiff class action firms are filing TCPA fax class actions across the country. This "feeding frenzy" has also spawned ancillary coverage litigation between commercial general liability insurers and their insureds over whether CGL policies cover claims for violation of the TCPA's ban on unsolicited facsimile ads.
The EBR Exemption
In enacting the TCPA, Congress delegated to the Federal Communications Commission the responsibility to adopt rules to implement the TCPA. In its September 17, 1992 Report and Order adopting rules to implement the TCPA, the FCC stated that it was permissible to send an unsolicited facsimile ad to a person with whom the sender had an EBR. 1992 TCPA Order, 7 FCC Rcd at 8779, para. 54 n.87, 1992 FCC Lexis 7019 *70. The Commission determined that the existence of a prior business relationship between the sender and a recipient created an implied consent on the part of the recipient to receive unsolicited facsimile ads.
FCC Amends the TCPA Rules and Eliminates the EBR Exemption
In September of 2002, the FCC issued a Notice of Proposed Rulemaking, noting that it had been over ten years since its TCPA rules were adopted and seeking comment on whether they should be amended. As a result of this process, on July 3, 2003 the FCC issued a Report and Order revising the TCPA rules. Included amongst the revisions was an amendment to the rules to eliminate the EBR exemption. The Commission amended 47 C.F.R. 64.1200 (a)(3)(i) to provide that "a facsimile advertisement is not 'unsolicited' if the recipient has granted the sender prior express invitation or permission to deliver the advertisement, as evidenced by a signed written statement that includes the facsimile number to which any advertisements may be sent and indicates the recipient's consent to receive such advertisements from the sender." The effect of this amendment was to eliminate the EBR exemption and require a sender to obtain the express written permission of the recipient before sending an unsolicited fax ad. The effective date of the amendment was to be August 25, 2003.
The FCC Reconsiders and Extends the Date for Elimination of the EBR Exemption
After the FCC issued its July 3, 2003 Report and Order which eliminated the EBR exemption, several associations filed petitions for clarification and reconsideration of the FCC's July 3, 2003 Report and Order. In response to these petitions, on August 18, 2003, the FCC issued an Order on Reconsideration which delayed the effective date of the Commission's amendment of 47 C.F.R. 64.1200(a)(3)(i) eliminating the EBR exemption to January 1, 2005. The Commission stated that the comments it received after its July 3, 2003 Report and Order indicated that many organizations may need additional time to secure the required express written permission to send unsolicited facsimile ads and that the public interest would be best served by allowing organizations additional time to secure express written permission before the new rules become effective. The FCC's August 18, 2003 Order on Reconsideration was the subject of a prior Wildman Harrold Client Bulletin issued in August 2003, which may be found at http://www.wildmanharrold.com/practice/TCPA.pdf.
The FCC Establishes Time Parameters on the EBR Exemption Pending its Elimination on January 1, 2005
The Commission's August 18, 2003 Order on Reconsideration also amended 47 C.F.R. 64.1200(f)(3) to establish time parameters on the EBR exemption which were to be applied until the elimination of the exemption on January 1, 2005. The FCC stated that effective August 25, 2003, an EBR would only exist for a period of 18 months from the date the recipient's purchase or transaction of business with the sender or for a period of three months from a recipient's inquiry or application concerning the sender's products or services. Thus while the FCC had delayed the date of the elimination of the EBR exemption, for the first time it also placed time parameters on the existence of the exemption.
The FCC Reconsiders Again and Rescinds the Time Parameters Placed on the EBR Exemption
On August 25, 2003, the U.S. Chamber of Commerce filed a petition for reconsideration of the FCC's facsimile advertisement rules requesting among other things, that the Commission reconsider its conclusion that an EBR will expire 18 months after the recipient's last transaction or three months after the last inquiry. On October 3, 2003, the FCC issued an Order granting the U.S. Chamber's petition for reconsideration and stayed the effective date of its amendment of 47 C.F.R. 64.1200(f)(3). The Commission held:
We now stay, for an interim period, the limitations imposed in section 64.1200(f)(3) on the duration of an "established business relationship" as it applies to the sending of unsolicited facsimile advertisements. During this interim period, the established business relationship, as applied to unsolicited facsimile advertisements, will not expire after 18 months of the recipient's last purchase or transaction or three months after the last application or inquiry.
Order, 18 FCC Rcd 19890, 2003 FCC Lexis 5369.
The Commission emphasized that nothing in its October 3, 2003 Order impacts its conclusion that an EBR constitutes sufficient permission to send a facsimile advertisement until January 1, 2005. The FCC also noted in the Order that in the absence of any further action by the Commission, its prior determination that an EBR does not constitute sufficient permission to send an unsolicited facsimile advertisement will go into effect on January 1, 2005.
Various Groups Lobby Congress to Restore the EBR Exemption
With the January 1, 2005 deadline for the elimination of the EBR exemption approaching, several associations began lobbying efforts to restore the EBR exemption. The U.S. Chamber of Commerce commissioned a survey which found that if the EBR exemption were eliminated it would cost small business owners $5,000 each in the first year and $3,000 each every year thereafter to comply with the new fax rules. The U.S. Chamber and other associations argued that businesses rely upon faxes to provide vital commercial information to their customers. The associations asserted that customers do not complain about receiving faxes from their supplier, realtor or mortgage broker, or someone else with whom they do business. They argued that the burdens on businesses will be great and that the benefit to consumers will be minimal.
House Subcommittee on Telecommunications and the Internet Holds Hearing on June 15, 2004 on Junk Fax Prevention Act of 2004
On June 15, 2004 the House Subcommittee on Telecommunications and the Internet, chaired by Rep. Fred Upton (R-MI), held a hearing on the proposed Junk Fax Prevention Act of2004. Four witnesses appeared before the Subcommittee, three industry representatives and a FCC Representative. The three industry representatives who testified before the Subcommittee were: Cheryl Kaechele, Publisher, Allegan County News on behalf of the National Newspaper Association ("NNA"); John V. Graham IV,President and CEO, American Society of Association Executives ("ASAE"); and Walt McDonald, President, National Association of Realtors ("NAR").
In his statement to the Subcommittee, Mr. McDonald of the NAR stated: "NAR commends the Subcommittee for its leadership in recognizing that the Federal Communication Commission's (FCC) revised rules governing the use of facsimile transmissions are a radical departure from current practice, would significantly interfere with day-to-day businesses activities and impose a significant new compliance burden on business of all types." McDonald further stated that the EBR exemption has worked well for the past 12 years since its implementation and that the FCC's new rules would have the unintended consequence of interfering with solicited faxes.
Mr. Graham of the ASAE stated in his testimony that: "The legislation before the Subcommittee addresses the unfortunate situation created by the new federal facsimile regulations issued last year by the Federal Communications Commission (FCC). These regulations...have fostered tremendous uncertainty in both the association and business community regarding this important and necessary form of communication."Graham noted that while the ASAE and other associations had requested the FCC to return to its prior interpretation of the EBR exemption, he doubted the Commission would do so and urged Congress to act to restore the EBR exemption.
In her testimony before the Subcommittee, Ms. Kaechele of the NNA stated: "Requiring newspapers to collect signed consent forms from all of their advertisers, as a tool for reducing unsolicited faxes, punishes businesses that respect their customers and use the fax machine responsibly."
K. Dane Snowden, Chief, Governmental Affairs Bureau, appeared before the Subcommittee on behalf of the FCC. Mr. Snowden's written testimony gave a broad overview of the history of the Commission's actions regarding the EBR exemption. In addressing why the FCC had changed its position on the EBR exemption, he stated: "Although the Commission in 1992 noted that 'prior express invitation or permission' could be interpreted broadly enough to allow an 'established business relationship' to suffice, a more extensive consideration of the statutory language in our 2003 rulemaking informed by our enforcement experience, led us to a different outcome." Mr. Snowden's written testimony did not really take a position on the Junk Fax Prevention Act of 2004 and he merely noted that the stay on the effective date of the amended fax rules until January 1, 2005, "has provided the Commission with an opportunity to review industry and consumer concerns." Although the transcript of the live testimony is not yet available, according to information posted on NNA's website, when pressed by Rep. Upton at the hearing before the Subcommittee as to whether the FCC would further extend the date for elimination of the EBR exemption, Snowden is reported to have declined to comment.
The ranking member of the House Committee on Energy and Commerce, Rep. John Dingell (D-MI), issued a statement on June 15, 2004 praising Subcommittee Chair Rep. Upton for holding the June 15, 2004 hearing and for his bipartisan leadership on this issue. Rep. Dingell noted in his statement that the FCC's desire to eliminate the EBR exemption "may quickly become an onerous burden, especially on small businesses and trade associations." He noted that under the FCC's new rules, his favorite restaurant would be unable to fax him an updated menu. Rep Dingell concluded his statement by stating with Subcommittee Chairman Upton's "continued bipartisan leadership, we can help strengthen enforcement against those sending illegal junk faxes and strike a proper balance that protects consumers and permits legitimate business communications."
H.R. 4600 - The Junk Fax Prevention Act of 2004 Introduced on June 16, 2004
Rep. Fred Upton (R-MI) introduced the Junk Fax Prevention Act in the House on June 16, 2004 and it was referred to the House Committee on Energy and Commerce. The bill has bipartisan support and has 34 co-sponsors from both sides of the aisle. The major co-sponsors include Rep. Joe Barton (R-TX), the Chair of the House Committee on Energy and Commerce; Rep. John Dingell (D-MI), the ranking member of the Energy and Commerce Committee; and Rep. Edward Markey (D-MA), the ranking member of the Subcommittee on Telecommunications and the Internet. The House Committee on Energy and Commerce approved the bill on June 24, 2004 and sent it to the House for approval. A companion bill (S. 2603) was introduced in the Senate on June 24, 2004. The Senate bill also has bipartisan support and was sponsored by Sen. Gordon Smith (R-OR) and co-sponsored by Sen. George Allen (R-VA), Sen. Ernest Hollings (D-SC) and Sen. John Sununu (R-NH). The Senate bill was referred to the Senate Committee on Commerce, Science and Technology.
Major Provisions of The Junk Fax Prevention Act of 2004
While there are some differences between the House and Senate bills which are likely to be resolved, the two major provisions of the Junk Fax Prevention Act of 2004 (the "Act") are present in both versions of the bill. First the bill codifies the established business relationship exemption which would otherwise be eliminated under the FCC's new regulations. Both versions of the bill amend 47 U.S.C. §227(b)(1)(C) to provide for an EBR exemption.
Second, both versions of the bill eliminate the requirement of written permission to send unsolicited facsimile ads and allow for oral permission. The Act defines an "unsolicited advertisement" as any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission in writing or otherwise. The Act adds the last clause to the definition to allow the permission to be "in writing or otherwise," thereby recognizing the effectiveness of oral consent to receive unsolicited facsimile ads. The FCC regulations which presently will go into effect January 1, 2005 require express written permission and would not recognize oral permission.
Other provisions of the Act require an opt-out notice and mandate the GAO to conduct a study of complaints received by the FCC regarding unsolicited facsimile ads and the level of enforcement success by the FCC and the Attorney General.
Notably the bill does not address what businesses perceive to be one of the more pernicious aspects of the current legislation, namely the filing of class actions seeking millions and in some cases trillions of dollars in damages. As noted above, plaintiff class action attorneys have seized upon the TCPA's ban on unsolicited fax ads due to its damages provision which allows for actual damages or $500 per fax transmitted in violation of the TCPA, which may be trebled. An unsuspecting business approached by a blast faxer and sold on a fax ad campaign can be bankrupted by a class action alleging a violation of the TCPA. Under the TCPA's damages provision providing for $500 per fax, a fax campaign involving the broadcast of 10,000 faxes exposes a business to $5 million in potential damages if the case is allowed to proceed as a class action. Unlike other federal consumer statutes such as the Fair Debt Collection Practices Act1 ("FDCPA"), which cap the amount of damages available in class actions, the TCPA contains no such limitations and plaintiff class action lawyers are seeking millions of dollars in class damages. Perhaps the lack of any reference to class actions is indicative of the fact that Congress never intended the statute to be used in this manner. This is certainly an issue which Congress should address.
Bipartisan Support for the Bill
It appears that the Act has bipartisan support and it has a significant number of sponsors on both sides of the aisle. Rep. Joe Barton, the Chair of the House Committee on Energy and Commerce, issued a press release on the Act supporting its enactment stating the Act "properly balances the need for efficient and effective communication between business and customers, and also provides the required consumer protections to ensure that those who don't want the faxes, don't receive the faxes." As noted above, the ranking member of the House Committee on Energy and Commerce, Rep John Dingell, praised Subcommittee Chair Rep. Upton for his bipartisan leadership on this issue. At this stage there does not appear to be any open opposition in Congress to the Junk Fax Prevention Act of 2004.
Business Groups are Solidly Behind the Bill
Numerous trade associations and other groups are actively supporting the Junk Fax Prevention Act of 2004. Major organizations such as the U.S. Chamber, the National Association of Realtors, and the National Association of Manufacturers are actively supporting the bill and are engaged in efforts to have their members notify their Representatives of their support for the bill. Over 200 organizations and companies have signed an open letter to all Members of the House of Representatives urging the passage of H.R. 4600.
Opposition to the Bill
At least one newspaper editorial has been published opposing the bill. The San Jose, California based Mercury News issued a June 23, 2004 editorial with the headline "Junk fax bill belongs in trash." The editorial opined that the bill would gut the ban on junk faxes and it "deserves a quick and decisive death."
California State Senator Debra Bowen (D-Marina Del Rey) also voiced her opposition to the bill. A June 17, 2004 statement appearing on the web page of the California Senate Majority Caucus quotes State Senator Bowen as stating, "Did I somehow miss the big clamor of people begging for more unsolicited sales pitches to show up on their fax machines?" Referring to the title of the Junk Fax Prevention Act of 2004, State Senator Bowen is quoted as stating, "Only in Congress can they suggest weakening a law and calling it prevention."
A vocal anti-junk fax advocate, Robert Biggerstaff, is quoted in Wired News as referring to the bill as a gift to junk faxers. Mr. Biggerstaff voiced his objection to Wired News concerning the removal of the time limitations on the existence of an EBR and is quoted as stating: "If I bought a left-handed widget from the hardware store 10 years ago, this bill gives them the right to blast me with junk faxes." Opposition to the bill from consumer groups may coalesce in the coming weeks.
What Should a Business Do?
As it stands now, unless the Junk Fax Prevention Act of 2004 is enacted, the FCC's new fax rules will take effect on January 1, 2005. These rules require that a sender must have express written permission from the recipient to receive unsolicited facsimile ads, regardless of whether the sender has or had an established business relationship with the recipient. While it appears that the legislative effort to restore the EBR exemption is well on its way, in the immortal words of Yogi Berra, "It ain't over 'til it's over." Businesses should be prepared to comply with the FCC's new fax rules effective January 1, 2005.
1 The FDCPA caps damages available in class actions at $500,000 or 1% of net worth, whichever is lower.15 U.S.C §1692k (a)(2)(B).