Telemarketing

Friday, September 13, 2002

Telemarketing presents a classic clash between privacy and freedom of speech. Many residents believe telemarketing calls invade their privacy. Some business owners counter that telemarketing is a lawful way to inform people about their services, and that regulations violate their First Amendment free-speech rights.

Federal and state legislators have passed numerous laws and are considering even more restrictions to crack down on what many perceive as an assault on residential privacy. “This is politically popular legislation,” says Missouri-based attorney Errol Copilevitz, who has handled many high-profile cases involving telemarketing regulations.

Federal laws and bills
The Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 is the primary federal law governing telemarketing. The law empowers the Federal Trade Commission to issue telemarketing regulations, including:

  • Prohibiting telemarketers from “causing any telephone to ring, or engaging any person in telephone conversation, repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.”
  • Limiting telemarketing calls to between 8 a.m. and 9 p.m.
  • Requiring a telemarketer to disclose his or her identity and to state clearly the purpose of the call.

The federal law also gives state attorneys general the authority to file civil lawsuits on behalf of their residents against those who continue to violate the law. In addition, individual citizens may file an action in federal district court against a company that violates the rules.

Another major federal law regulating telemarketing is the 1991 Telephone Consumer Protection Act or TCPA, which prohibits the use of an automatic telephone-dialing system to call a person unless one has received the express prior consent of that person. The Federal Communications Communication enforces violations of TCPA. Similar to the Telemarketing and Consumer Fraud law, TCPA also prohibits calls between the hours of 9 p.m. and 8 a.m.

In addition, TCPA requires telemarketers to place consumers on their do-not-call lists if requested to do so. The law also requires telemarketers to maintain written policies on their do-not-call lists.

Numerous lawsuits have been filed challenging the ban on automatic dialing devices prohibited under TCPA. Most courts have upheld the restrictions. Legal commentator Doug Lee writes: “Telephone solicitors have argued that the regulations do not directly advance a state’s interest because the law’s exemptions unfairly allow some solicitors unbridled access to consumers. Courts, however, have not been persuaded by this argument. Instead … they have held that Congress is not required to regulate telemarketing on an all-or-nothing basis.”

The Know Your Caller Act, introduced by Rep. Rodney P. Frelinghuysen, D-N.J., in October 1999, would have prohibited telemarketers from interfering with the caller-identification services of call recipients.

The measure would have made it unlawful to “interfere with or circumvent the capability of a caller identification service” and “to fail to provide caller identification information in a manner that is accessible by a caller identification service.” The House passed the measure on Sept. 27, 2000, but the bill never cleared the Senate.

A bill introduced in 2000, the Telemarketing Victims Protection Act, would have required telephone solicitors to notify consumers of their right to be placed on a “do-not-call list” and would have prohibited solicitation calls between 5 and 7 p.m., a time when many families eat dinner. The bill never emerged from a House subcommittee.

‘Do-not-call’ registries
Telemarketing proposals continue to surface at the federal and state levels. A feature common to many recent telemarketing measures concerns a do-not-call list — a list of consumers who have informed a government agency that they do not wish to receive telemarketing calls.

In March 2002, Rep. Nancy L. Johnson, R-Conn., introduced the Telemarketing Relief Act of 2002, H.R. 3911. This proposal called for the Federal Trade Commission to establish a “telemarketer no-call list.” Although Johnson’s measure did not make it out of subcommittee, the FTC has amended federal rules to include a “national ‘do not call’ registry” of its own, which would prohibit telemarketers from contacting individuals listed in the registry. (Many states already have passed similar laws.) Under the 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act, Congress gave the FTC authority to make such rules within the purposes of that law.

Under that authority, the FTC amended the Telemarketing Sales Rule, 16 C.F.R. Part 310, to include a national do-not-call registry. The rule prohibits many commercial telemarketers from calling individuals who join the registry.

In March 2003, President Bush signed into law H.R. 395, the “Do-Not-Call Implementation Act,” which empowers the FTC to impose fees on telemarketers to pay for the national do-not-call registry. The list was launched on June 27. In late September, President Bush signed into law another telemarketing measure that explicitly gave the FTC the power to establish such a national do-not-call list. This legislation followed closely on the heels of two federal court decisions against the act.

The do-not call act has spurred several lawsuits, including one filed in January 2003. In U.S. Security v. Federal Trade Commission (No. 03-122)(W.D. Okl.), five telemarketing companies — U.S. Security, Chartered Benefit Services, Global Contact Services Inc., Infocision Management Corp. and Direct Marketing Association Inc. — challenged the FTC’s national do-not-call list in a federal district court in Oklahoma.

In Mainstream Marketing Services, Inc. v. Federal Trade Commission, No. 03-N-0184 (MJW)(Dist. Colo.), two telemarketing groups — Mainstream Marketing Services and the American Teleservices Association — also filed a lawsuit on Jan. 29. This lawsuit, filed in a federal district court in Colorado, made similar allegations to the U.S. Security suit.

Both suits claimed that the do-not-call registry selectively discriminated against certain commercial telemarketers in violation of the First Amendment and the equal-protection clause of the 14th Amendment. The lawsuits also claimed that the FTC exceeded its statutory authority in amending the Telemarketing Sales Rule in such a fashion.

In the Oklahoma case, a federal district court ruled on Sept. 23, 2003, that the FTC did not have the authority to promulgate a national do-not-call registry. Instead, the court said, Congress had given such authority to the FCC. The very next day, a bill was introduced in the U.S. House of Representatives granting the FTC the authority to implement a do-not-call registry.

In the Mainstream Marketing case out of Colorado, a federal district court in September 2003 ruled that the do-not-call regulations violated the First Amendment. The court wrote that “the FTC’s do-not-call registry does not materially advance its interest in protecting privacy or curbing abusive telemarketing practices.” The court reasoned that the 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 supporting the disparate treatment of different categories of speech.” The court noted that calls from exempt charities were just as invasive of privacy rights as calls from commercial telemarketers. The FTC appealed the decision, obtaining a stay of the trial court opinion in October 2003.

The two cases from Oklahoma and Colorado were consolidated before the 10th U.S. Circuit Court of Appeals based in Denver. In Mainstream Marketing Services Inc. v. FTC, 358 F.3d 1228 (10th Cir. 2004), the 10th Circuit upheld the registry, finding it to be a reasonable restriction on commercial speech. “Just as a consumer can avoid door-to-door peddlers by placing a ‘No Solicitation’ sign in his or her front yard, the do-not-call registry lets consumers avoid unwanted sales pitches that invade the home via telephone, if they choose to do so,” the appeals court wrote in its February 2004 ruling. The appeals court relied on the U.S. Supreme Court’s decision in Rowan v. United States Post Office, 397 U.S. 728 (1970), in which the high court upheld the right of a homeowner to prohibit unsolicited mailings to his or her mailbox.

The appeals court also rejected the argument that the law was an unconstitutional, content-based restriction on speech because it singled out commercial calls, while allowing charitable and political calls. According to the court, “commercial calls were more intrusive and posed a greater danger of consumer abuse.

The American Teleservices Association sought review by the U.S. Supreme Court, which denied certiorari in October 2004.

A group of charities and professional fundraisers raised a similar challenge to the Telemarketing Sales Rule, as it applied to the do-not-call list. The National Federation of the Blind and others contended that the Federal Trade Commission exceeded its authority and that its resulting rule violated the First Amendment. They argued that the FTC’s authority over professional fundraisers for non-profits — expanded after an amendment in the U.S.A. Patriot Act — violated the First Amendment because it distinguished between professional fundraiser calls and calls made by the charities themselves. In other words, the FTC’s telemarketing sales rule applied to telemarketing calls by professional fundraisers for charities but not to calls made in-house by the charities themselves.

The 4th U.S. Circuit Court of Appeals rejected the challenges and upheld the FTC’s regulations in National Federation of the Blind v. FTC in August 2005. “These regulations are, in short, the product of a necessary balancing,” the appeals court wrote. “The rights of charities and telefunders to communicate with potential donors were weighed against the right of those donors to enjoy residential peace. In this respect, the regulations are akin to the numerous time, place, and manner restrictions on speech that the Supreme Court has often upheld against First Amendment challenge.”

Challenges to state do-not-call laws by telemarketers
Many states have already passed similar do-not-call laws. At least three of those state laws, in Indiana, Colorado and North Dakota, have faced legal challenges.

Indiana’s law, which provides for a no-call list, has faced constitutional challenges in state and federal court. In state court, the owner of a cleaning-distribution business claimed the law violated the First Amendment. The owner argued, among other claims, that the state law violated his First Amendment rights. An Indiana state trial judge disagreed in Martin v. Carter.

“The interruptions imposed by uninvited telephone solicitations constitute a serious intrusion into residential privacy,” the judge wrote.

The Indiana court then noted that although telephone solicitation calls are a form of commercial speech, “commercial speech is entitled to less protection than most non-commercial speech.”

Applying the familiar test articulated by the U.S. Supreme Court in the 1980 case Central Hudson Gas & Electric Corp. v. Public Serv. Comm., the Indiana court noted that the state had substantial interests in the regulation, that the law directly advanced those interests, and that it was not too speech-restrictive.

The business owner could reach potential customers in other ways, such as through the mail, newspaper ads, magazine ads, radio, television, the Internet, the Yellow Pages, handbilling, leafleting and door-to-door advertising. “The Act leaves open these ample alternative means of communications, doing nothing to inhibit those forms of solicitation,” the Indiana court wrote.

The business owner also argued that the law violated the First Amendment because it discriminated in favor of certain speakers, such as those selling newspapers, working for charities, those selling insurance and those selling real estate.

The court determined that those exemptions were valid and did not involve a government preference for the messages of those types of callers. “Rather, these exemptions reflect the General Assembly’s attempt to limit the domain of proscribed calls to those reasonably perceived as providing the impetus for the Act in the first place,” the court wrote.

The plaintiffs decided not to appeal the state trial court’s ruling.

The law faced another challenge in federal court. Several nonprofit groups — including the National Coalition of Prayer, Inc., the Kentucky-Indiana Chapter of Paralyzed Veterans of America, the Indiana Troopers Association, Inc. and the Indiana Association of Chiefs of Police Foundation — contended the law violates their First Amendment rights by granting exemptions only to certain nonprofits and certain commercial speakers, such as insurance companies.

In their complaint in National Coalition of Prayer Inc. v. Carter, the plaintiffs wrote that “the appeal for support of the public by a nonprofit organization is speech, fully protected by the First Amendment to the United States Constitution, regardless of the medium of communication.”

“When a regulation on speech contains exceptions and exemptions based on content, the regulation is presumptively unconstitutional,” says Copilevitz, who is representing the plaintiffs. “When the government regulates and prohibits fully protected speech, it must do so in the least-restrictive means available. There are many other far less restrictive ways that the state of Indiana could regulate telemarketing, including the existing regulations in the Telephone Consumer Protection Act.

“Any kind of restriction based on content is vulnerable to constitutional invalidity under the First Amendment,” Copilevitz said. “The government can’t prefer one speaker over another.”

However, both a federal district court and federal appeals court upheld the Indiana law in 2005 and 2006 respectively. The 7th U.S. Circuit Court of Appeals ruled in National Coalition of Prayer v. Carter that the law was a reasonable method of protecting residential privacy: “The Indiana legislature passed the Act in order to preserve residential privacy, which was being invaded by the sheer volume of calls inundating homes on a daily basis. This inundation could quite reasonably have been determined to occur when commercial motivation joins forces with a professional telemarketer possessing the technology and capacity to call thousands of people in a relatively short period of time.”

Parts of North Dakota’s do-not-call law relating to charitable calls were struck down. A federal district court judge in Fraternal Order of Police v. Stenehjem ruled that the law impermissibly discriminated against those charities who hired professional telemarketers, while allowing charities who had volunteers or their own employees make such calls. “Those charities that use volunteers or employees may still call and invade one’s privacy,” the judge wrote. “Since the law still allows invasions of privacy by charities, it is not narrowly tailored to serve the interest in protecting privacy.” The judge ruled that the provisions related to charities could be severed from the law and the rest of the do-not-call law was constitutional.

However, the 8th U.S. Circuit Court of Appeals reversed, finding that the statute was constitutional in Fraternal Order of Police v. Stenehjem. The appeals court wrote that “the Act does not burden more speech than is necessary to further the State’s interest in residential privacy.”

Colorado’s law, which went into effect July 1, 2002, currently faces a challenge in federal court. In Colorado Citizens for Free Speech, L.L.C. v. Smith (Civil Action No. 02-RB-1192)(Dist. Colo.), several telemarketing groups challenged the law on First Amendment grounds.

On June 26, 2002, U.S. District Judge Robert E. Blackburn refused to grant a temporary restraining order to stop the law from going into effect. The judge emphasized important privacy interests at stake and the fact that individual consumers chose to be placed on the do-not-call list. “The most important aspect that the act defines is that it regulates calls only with regard to call recipients who choose to seek protection from the act,” Blackburn wrote.

In the meantime, the Federal Communications Commission works with the FTC in ensuring the maintenance of the national do-not-call list. Similear to the FTC, the FCC maintains a Web page devoted to the do-not-call list, which instructs consumers on how they can register for the list. Since Jan. 1, 2005, telemarketers have been required to search the national registry at least once every 31 days and drop from their call lists the phone numbers of consumers who have registered.

Supreme Court addresses telemarketing
Many lower courts have addressed challenges to telemarketing laws. On Nov. 4, 2002, the Supreme Court agreed to wade into these troubled waters when it granted review in an Illinois case. State Attorney General James Ryan, later replaced by the new attorney general, Lisa Madigan, charged two professional fundraising corporations, Telemarketing Associates and Armet, Inc., with fraud after discovering that the companies had kept 85% of the revenue they raised for a nonprofit group called VietNow.

VietNow and the two companies had agreed that Telemarketing Associates could keep 85% of the gross collections in Illinois as a result of its marketing plan. VietNow never complained about the arrangement, but the state attorney general’s office filed suit after learning that the telemarketing groups did not advise donors that only 15% of their funds would actually go to VietNow.

The attorney general claimed that the defendants’ solicitations were “knowingly deceptive and materially false” and were fraudulent. The state included affidavit testimony in which people said they were told the bulk of their donated money would reach the charity.

However, the Illinois Supreme Court rejected the state’s argument and reasoned that the First Amendment protected the defendants’ solicitation activities. The state high court cited a 1980 U.S. Supreme Court decision for the proposition that “solicitation is characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political, or social issues, and … that without solicitation the flow of such information and advocacy would likely cease” (Village of Schaumburg v. Citizens for a Better Environment).

The Illinois high court noted that the U.S. Supreme Court had emphasized the First Amendment rights of charitable solicitors in several cases, including Secretary of State v. Joseph H. Munson, Co. and Riley v. National Federation of the Blind of North Carolina, Inc.

On May 5, 2003, the U.S. Supreme Court unanimously reversed in Illinois ex rel. Madigan v. Telemarketing Associates, Inc. (Because of the change in attorneys general, the case name changed from Ryan v. Telemarketing Associates, Inc.)

Writing for the Court, Justice Ruth Bader Ginsburg emphasized that individual fraud actions were different in kind from the statutes struck down in the Schaumburg, Munson and Riley decisions.

“So long as the emphasis is on what the fundraisers misleadingly convey, and not on percentage limitations on solicitors’ fees per se, such actions need not impermissibly chill protected speech,” Ginsburg wrote. That is, individual fraud actions will not chill too much protected speech because the state bears the burden of proof in all such actions by clear and convincing evidence.

The regulation of telemarketing will continue because many Americans view such calls as an invasion of their privacy. Many of the telemarketers possess the funds necessary to challenge the constitutionality of telemarketing regulations so the battle will continue in the courts. However, so far a clear pattern has emerged — courts are tending to favor the telemarketing restrictions as a reasonable way to protect residential privacy.

Updated February 2007

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