Federal appeals panel puts popularity aside in phone company case

Wednesday, September 1, 1999

After the decision in US West v. Federal Communications Commission, it’s clear that even telemarketers have First Amendment rights.

In US West, the 10th U.S. Circuit Court of Appeals struck down FCC regulations that required telephone companies to obtain customer permission before they could use personal customer information in marketing efforts. The appeals panel, in a 2-1 decision, held that the regulations violated the telephone companies’ First Amendment right to communicate with their customers.

At issue in the case was the use of customer proprietary network information (CPNI), which includes information such as the quantity, length and destination of a customer’s calls. The regulations permitted telephone companies to use CPNI within categories of service but required express customer consent before this information could be used to market other services. A telephone company, for example, could freely use CPNI obtained from a customer’s cellular phone account to market other cellular phone products and services, but it could not use that information to attempt to sell long-distance services to the customer.

Recognizing that the speech at issue was pure commercial speech &3151; speech that does no more than propose a commercial transaction — the court analyzed the regulations under the test enunciated by the U.S. Supreme Court in Central Hudson Gas & Electric Corp. v. Public Service Commission of N.Y. In Central Hudson, the Supreme Court held that truthful commercial speech can be restricted only if the government proves that (1) it has a substantial state interest in regulating the speech, (2) the regulation “directly and materially” advances that interest and (3) the regulation is no more restrictive than necessary to serve that interest.

The court in US West found that the FCC failed to satisfy the second and third prongs of the Central Hudson test. Even if the government had a substantial interest in protecting consumer privacy, the court said, the FCC had not proved that the regulations advanced that interest. In fact, the court noted, the FCC had not offered any evidence that telephone companies would even disclose CPNI to companies other than affiliates and subsidiaries.

In holding that the regulations also were overly restrictive, the court observed that the FCC could have adopted an “opt-out” means of securing customer consent, which would have allowed a telephone company to assume permission unless the customer informed it otherwise. By requiring express customer consent (the “opt-in” approach), the FCC made it more difficult for telephone companies to reach customers who are ambivalent about their CPNI.

Although irrelevant to its holding, one of the most interesting parts of the court’s opinion was its discussion of the government’s interest in protecting consumer privacy. The court assumed “for the sake of this appeal” that the government had such an interest but it warned that this interest was dangerous if left unchecked.

The court cautioned that the varying degrees of legitimate privacy interests require courts to be especially vigilant when the government asserts privacy as a substantial state interest. Privacy, the court said, “is not an absolute good,” pointing out that privacy rules can facilitate the spread of false information, reduce economic productivity and threaten personal safety. Courts therefore must ensure that the government weighs the costs and benefits when it uses privacy rationales to restrict the flow of information.

The court also rejected the notion that all types of personal information trigger the same privacy concerns. To justify speech restrictions, the court said, the government must demonstrate that the release of information would cause individuals “specific and significant harm,” such as ridicule or harassment.

“Although we may feel uncomfortable knowing that our personal information is circulating in the world,” the court reasoned, “we live in an open society where information may usually pass freely. A general level of discomfort from knowing that people can readily access information about us does not necessarily rise to the level of a substantial state interest under Central Hudson for it is not based on an identified harm.”

In this age of political correctness, the court in US West undoubtedly would have been more popular had it embraced the privacy rights of consumers rather than the free-speech rights of telemarketers. The court, however, correctly recognized that popularity was not the issue.

“[T]his case is a harbinger of difficulties encountered in this age of exploding information,” the court said. In such a case, the court reminded us, the “rights bestowed by the United States Constitution must be guarded as vigilantly as in the days of handbills on private sidewalks.”

Douglas Lee is a partner in the Dixon, Ill., law firm of Ehrmann Gehlbach Beckman Badger & Lee and a legal correspondent for the First Amendment Center.