Do Not Call Stumbles, Recovers

Court of Appeals Allows for FTC Implementation of National No Call Registry Pending Hearing on Constitutional Issue

On October 7, 2003, the United States 10th Circuit Court of Appeals granted the Federal Trade Commission's ("FTC") request to stay an order of the United States District Court for the District of Colorado that blocked FTC implementation and enforcement of the National Do Not Call Registry ("Registry"). In granting the stay, the Court of Appeals found that the FTC demonstrated a substantial likelihood of success on the merits and that the implementation of the Registry likely "passes muster" under the Central Hudson test. The court stated that the FTC would likely be able to show that the Registry is narrowly tailored to directly advance a substantial government interest.

In a joint press conference with the Federal Communications Commission ("FCC") on October 8, 2003, the FTC announced the following Registry implementation schedule:

  • Consumers can add their telephone numbers to the Registry beginning on October 9, 2003;
  • Sellers and telemarketers will be able access the Registry on October 10, 2003;
  • Consumers who had registered telephone numbers prior to September 1, 2003 can file Registry violation complaints via the Internet or a toll-free number beginning on October 11, 2003.

The practical result of the Court of Appeals' decision is that sellers and telemarketers who had purchased the Registry prior to the stay will be liable for any calls made in violation of the Registry requirements beginning on October 11, 2003. To the extent that a seller or telemarketer is unable to comply by that date (i.e., scrub all telemarketing lists against the Registry) they run the risk of being fined $11,000 for each call that violates the Registry requirements. According to news sources, the FTC and FCC have granted a seven-day grace period to those entities who had not previously obtained the Registry, and will begin joint enforcement of the Registry requirements on October 17, 2003.

Background

Regulatory

In its amended Telemarketing Sales Rule ("TSR"), the FTC provided for the creation and implementation of the Registry. In addition to providing an exemption for calls made to consumers with whom the seller has an "established business relationship," the TSR specifically exempted telemarketing calls made by charitable organizations from the Registry requirements. Despite this Registry exemption, charitable organizations are still required to comply with the TSR's company-specific do not call requests. Enforcement of the Registry was originally scheduled to begin on October 1, 2003.

In July 2003, the FCC revisions to the Telephone Consumer Protection Act ("TCPA") followed suit and specifically adopted the Registry, with an exemption for charitable calls.

Legal Challenges

FTC Challenges

Immediately following the FTC's amendment of the TSR, various industry groups filed lawsuits challenging the FTC's authority to implement the Registry and attacking the constitutionality of the Registry itself.

On September 23, 2003, a United States District Judge in Oklahoma ruled in favor of an industry challenge, holding that the FTC acted without statutory authority in creating and implementing the Registry. The court's decision stated that, unlike the FCC, which has specific authority to enact a national do not call registry, the FTC was only authorized by Congress to regulate deceptive and abusive telemarketing acts and practices, and therefore it exceeded its statutory authority by enacting the Registry. The court failed to rule on the constitutionality of the Registry. In an immediate response to this ruling, Congress approved and President Bush signed into law (within days) a bill that explicitly provided the FTC with the necessary authority to implement the Registry.

On September 2, 2003, in another industry lawsuit, a United States District Judge in Colorado ruled that the Registry violated First Amendment free speech rights. The Judge noted that because the Registry exempted certain types of calls, such as charitable calls, the Registry represented a government restriction of speech based on content. In enjoining the FTC's ability to implement and enforce the Registry, the court stated, "[t]he registry creates a burden on one type of speech based solely on its content, without a logical, coherent privacy-based or prevention-of-abuse-based reason to support the disparate treatment of different categories of speech." The FTC sought a stay of the injunction, asking that it be allowed to continue its implementation and begin enforcement efforts of the Registry pending the outcome of the appellate process. As noted above, the 10th Circuit overturned the District Court's denial of the stay.

FCC Challenge

In addition to the FTC lawsuits, industry also filed a petition in the United States Court of Appeals for the 10th Circuit in Denver seeking to stay FCC enforcement of the Registry pending a review of the TCPA on the merits, also based on First Amendment grounds. On September 26, 2003, the motion for the stay was denied, the court finding that the petitioners failed to show a substantial likelihood of success on the merits.

Anticipated Action

The Court of Appeals has consolidated the three pending appeals and has set an expedited hearing schedule. Oral arguments are currently scheduled for November 10, 2003.

In this otherwise confusing and fluctuating regulatory environment, the Registry's fate seems unclear. What does seem clear is that final resolution on the continued existence of the Registry will not be attained until the appellate process is fully exhausted. In the interim, given that the Registry is currently active and subject to FTC and FCC enforcement, sellers and telemarketers must ensure full compliance with both the FTC and FCC Registry requirements.