Consumer Advertising Law Blog

FTC Sends Clear Message Re Mobile Phone Cramming

Late last month, the Federal Trade Commission (FTC) filed its first complaint in the area of mobile phone “cramming.”  The case, filed against Wise Media, LLC, Brian M. Buckley, and Winston J. Deloney alleges that defendants made tons of money “cramming” unauthorized charges on consumers’ cell phone bills.  The complaint signals how strongly the FTC is focused on the technology arena and consumer protection issues arising out of this area (which appear to be many, see here, here and here for just a few examples).  As technology improves, apparently so does the creativity of those allegedly  scamming consumers.

Allegedly, crammers bill consumers for “premium services” like horoscopes, love tips, and other such information that consumers receive via text message a few times a week.  The FTC claims the problem is that many consumers didn’t actually opt in to receiving such texts, but were chosen at random, then billed monthly for the service.  At times, the FTC alleges, defendants did send text messages suggesting that people were getting a new service, but most people deleted the texts as spam.  In the rare instances that consumers texted back that they weren’t interested, apparently those requests were ignored and consumers were charged anyway.

The subject of phone bill cramming is not new, but this is the FTC’s first foray into the mobile area.  To address some of these issues, The Commission is hosting a “Mobile Cramming Roundtable” on May 8.  The discussion will be free and open to the public at the FTC’s Conference Center in Washington.  FTC Commissioner Maureen Ohlhausen is slated to provide opening remarks and various panelists will discuss the state of mobile cramming today, including strategies on how to prevent and respond to the practice.  The agenda for the roundtable can be found here.  We will of course keep our readers updated on any new developments in this area, but the message from the FTC is loud and clear.  As technology gets more sophisticated, so do scammers, but the regulators are taking note and planning countermoves of their own.  Stay tuned!

- Danielle Garten 

Don’t Hang Up Yet: Hope for the Future of Illegal Robocalls

The Federal Trade Commission (FTC) announced the winners of the FTC Robocall Challenge, a contest designed to tap into the technologically-savvy Millenial generation by soliciting ways to block illegal robocalls on landlines and mobile phones. The FTC launched the challenge in October 2012 as part of its ongoing battle against illegal, prerecorded telemarketing calls. The FTC offered a cash prize of $50,000 and received almost 800 eligible submissions. 

The FTC launched this challenge in response to a growing number of complaints by American consumers facing a tireless barrage of unwanted, and often deceptive, prerecorded telephone messages called robocalls. Companies today are using sophisticated computer software, namely autodialers, to send thousands of these prerecorded telephone calls every minute for a low cost.  Both the FTC and FCC regulate robocalls.

In 2012, the FCC adopted changes to its telemarketing rules to align them with the FTC’s rules.  (We blogged about these proposed changes here.)  In short, companies who want to make prerecorded commercial telemarketing calls must have written permission to do so even if there is an established business relationship. Some calls, such as purely informational calls, political calls, and calls from charities themselves, for example, do not fall under the robocall rules. Not only are commercial robocalls illegal and annoying, but the FTC warns consumers they may be scams offering fraudulent credit card services, auto warranty protection, or grant procurement programs. What about the national Do Not Call Registry, you might ask?  According to the FTC, scammers ignore such social conventions. 

With new technology making illegal robocalls pervasive comes the possibility of innovative ideas to combat the problem. Serdar Danis and Aaron Foss tied for the grand prize of Best Overall Solution, after an evaluation based on three criteria: (i) whether the proposal works (ii) whether it is easy to use, and (iii) whether it can be implemented. Each will receive $25,000 for his proposal, which both work by intercepting and filtering “blacklisted” robocaller phone numbers, thus preventing the illegal calls from ringing through to the end user.  Mr. Danis’s proposal, Robocall Filtering System and Device with Autonomous Blacklisting, Whitelisting, Graylisting and Caller ID Spoof Detection, uses software which could be implemented as a mobile app, an electronic device in a user’s home, or a feature of a provider’s telephone service to analyze and block illegal robocalls.  Mr. Foss’s proposal, Nomorobo, suggests using a cloud-based solution with “simultaneous ringing,” allowing incoming telephone calls to be routed to a second phone line that would identify and hang up on illegal robocalls before they reach the end user. 

Additionally, Daniel Klein and Dean Jackson from Google won the Robocall Challenge Technology Achievement Award, a non-cash prize available to organizations that employ 10 or more people, with their Crowd-Sourced Calls Identification and Suppression Solution.  All three winning proposals would use automated algorithms to identify spam callers.  It is unclear at this time whether any of the winning ideas will be developed to combat the problem of illegal robocalls.

- Brittany McClure and Michael Levin

Can I Get that Pizza for Delivery? Court Certifies Class in Papa John’s Case

On November 9, 2012, the US District Court for the Western District of Washington allowed Papa John’s customers who received text messages advertising Papa John’s pizzas to seek relief in a class action that includes potentially hundreds of thousands of customers. In the lawsuit , named plaintiff Maria Agne claims that certain Papa John’s franchisees provided lists of customers’ phone numbers to a marketing company, OnTime4U. OnTime4U allegedly sent text messages containing Papa John’s advertisements to these customers -- with some customers receiving dozens of messages -- even though no customers consented to receive such messages. Ms. Agne sued not only OnTime4U and the franchisees she believes gave out phone numbers, but also the national Papa John’s franchisor, which she claims directed, encouraged, and authorized the franchisees to use OnTime4U’s services. The lawsuit raises claims under the federal Telephone Consumer Protection Act (TCPA), as well as Washington state law claims, and seeks at least $500 in damages for each violation of the TCPA. 

Papa John’s maintains that Ms. Agne overstates any involvement by Papa John’s in OnTime4U’s advertising campaign. According to Papa John’s, whether a franchisee used OnTime4U was solely the decision of that individual franchisee, and Papa John’s did not and could not require a franchisee to use OnTime4U. Papa John’s also claims that, after receiving complaints from customers about the text messages and concluding that OnTime4U’s text messages might violate the TCPA, Papa John’s promptly disavowed any relationship with OnTime4U and instructed its franchisees to reclaim any information they had provided to OnTime4U or to ask OnTime4U to destroy that information. 

The court’s decision, which certified both a nationwide class and a statewide class, pointed out that Papa John’s had not contracted with OnTime4U, but nevertheless concluded that there was evidence of Papa John’s involvement with the advertising campaign. In particular, the court observed that some employees of Papa John’s encouraged franchisees to use OnTime4U and that OnTime4U made a marketing presentation at a Papa John’s conference attended by its franchisees. The court further concluded that questions regarding Papa John’s relationship with OnTime4U applied equally to all class members and thus supported its decision to proceed as a class action. In addition, the court explained that there was no indication that any customer had consented to receiving text messages from Papa John’s and therefore the question of customer consent did not preclude class certification. Moreover, the court rejected Papa John’s argument that the TCPA requires that each customer have been charged for a text message and Papa John’s argument that Ms. Agne could not recover because her cell phone was in her ex-husband’s name. 

The court’s holding potentially could lead to one of the largest awards ever under the TCPA, which could be hundreds of millions of dollars given the size of the classes, the scope of the advertising campaign, and the availability of $500 per TCPA violation. Before any such award, however, Papa John’s is likely to seek an immediate appeal of the court’s class certification decision. In addition, Papa John’s likely will raise numerous arguments as to why it is not liable for advertisements sent by OnTime4U, including that Papa John’s did not participate in OnTime4U’s campaign and should not be vicariously liable for the acts of its franchisees. 

Whatever the ultimate outcome, the lawsuit and recent decision demonstrate the potential risks for franchisors that are even marginally involved in franchisees’ advertising decisions.  It also shows the potential for large-scale class actions seeking significant damages under the TCPA where parties employ text message advertising aimed at customers that have never provided any consent.  It is unquestionable that this form of advertising can reach a massive number of people in a short amount of time, so franchisors should beware.    

- David Kouba

Tougher Restrictions on Telemarketing Calls

The Federal Communications Commission is changing its rules for telemarketing calls and messages under the Telephone Consumer Protection Act (TCPA), which governs the use of prerecorded calls or calls placed with an automated telephone dialing system.

The FCC’s Order changes its rules to align with the Telemarketing Sales Rule of the Federal Trade Commission.  Thus, companies already in compliance with the FTC’s more stringent rules will not need to change their practices to comply with this Order.  However, the FTC’s rules do not apply to banks, credit unions, savings and loans, insurance companies, airlines or common carriers.  The FCC’s rules do, so those entities need to address the additional restrictions.

Under the new rules:

1. the consent required to make a prerecorded or autodialed telemarketing call must now be in writing or may comply with the E-Sign Act, which provides that a signature “may not be denied legal effect, validity, or enforceability solely because it is in electronic form”;
2. the established business relationship exemption to the consent requirement is being eliminated;
3. prerecorded messages must have an automated opt out mechanism available during the call;
4. the abandoned call limit must be measured on a per-calling-campaign basis, rather than just a 30-day period; and
5. prerecorded heath care related calls to residential lines governed by the Health Insurance Portability and Accountability Act (HIPAA) are exempted from the consent, identification, time of day, opt-out and abandoned call requirements.

For details and effective dates of the new rules, click here.

- Richard Firestone & Michael Levin

FTC Tries to Keep "Do Not Call" As Most Popular Government Program Ever

The FTC often jokingly refers to its Do Not Call Registry as the most popular government program ever (personally I'd vote for anything involving a tax credit or rebate.)  It's no wonder.  The Do Not Call registry consistently generates the greatest number of consumer complaints, and the FTC has entered into orders providing for more than $540 million in consumer restitution or disgorgement. The FTC's sister agency, the Federal Communications Commission, has similar regulatory requirements under the Telephone Consumer Protection Act (TCPA), and the FTC filed comments this week before the FCC relating to whether companies should be held liable for telemarketing calls placed on their behalf.

The FCC proceeding arises out of Do Not Call litigation the Justice Department is currently prosecuting on the FTC's behalf against DISH Network in which the court directed the parties to seek guidance from the FCC under the doctrine of primary jurisdiction. The specific question raised by the FCC is whether, under the TCPA, a seller can be liable if another entity actually places the call on its behalf.  In its comments, the FTC strongly urged the FCC to find that a seller is liable for telemarketing calls made on its behalf.  The FTC argued that common law principles of agency should not apply in this instance and that its own precedent suggests that a seller is responsible for all calls made by anyone acting as its representative or for its benefit. The FTC also notes that the two agencies have traditionally tried to harmonize interpretations of their two similar telemarketing regulations.  The FTC concludes by noting that reaching any other conclusion could potentially open up a huge hole with regard to telemarketing enforcement.  For that very same reason, among others, it seems likely that the FCC will reach the conclusion urged by the FTC.

- Randy Shaheen

FCC Proposes Revised Telemarketing “Robocall” Rules

The Federal Communications Commission (FCC or Commission), which regulates telemarketing under the Telephone Consumer Protection Act (“TCPA”), has proposed revised telemarketing rules governing prerecorded telemarketing calls — so called “robocalls” — to harmonize its rules with the Federal Trade Commission’s (FTC) recently amended Telemarketing Sales Rule, adopted pursuant to the Telemarketing Consumer Fraud and Abuse Prevention Act. While most entities that use robocalls are regulated by both the FTC and the FCC, certain entities (such as common carriers, banks, and insurance companies) fall only under the FCC’s jurisdiction and have been subject to less restrictive standards since the FTC amended its Rule in 2008. The FCC’s proposed changes would not affect robocalls by or on behalf of tax-exempt non-profit organizations; calls for political purposes or for other noncommercial purposes; and calls initiated for emergency purposes. Comments are due 60 days and reply comments are due 90 days after the proposed rules are published in the Federal Register, which has not occurred as of this blog. Comments may be filed electronically using the Electronic Comment Filing System (ECFS).

Proposed Changes to FCC Rules: The FCC has proposed five amendments to conform its rules with the FTC’s more restrictive rules.

FTC Reaps Millions in Penalties in Do-Not-Call Settlements

If you call consumers to ask them, nicely, to take their name off your Do Not Call List is that telemarketing?  Apparently DirecTV thought not but the FTC thought otherwise and it cost the company and one of its telemarketers $2.425 million.

DirecTV had previously settled an FTC DNC complaint in 2005 for $5.3 million.  In the current case, according to the FTC’s complaint, DirecTV caused one of its telemarketers to place prerecorded calls to numbers on DirecTV’s company-specific DNC list. The prerecorded calls told recipients that DirecTV could not contact them to extend “exciting offers” because their numbers were on DirecTV’s DNC list, and that they could “press one” to remove their numbers from the list. The FTC's position is that calls seeking permission to make telemarketing calls are themselves telemarketing calls, and can not be made to numbers on the caller’s company-specific DNC list or on the National DNC Registry. The FTC also charged that the prerecorded calls constituted prohibited “abandoned” calls because no live operator was connected.

On the same day the FTC announced that it had settled another case against Comcast for violations of the federal “Do Not-Call” (“DNC”) telemarketing laws and the FTC’s Telemarketing Sales Rule (“TSR”).  The Comcast case marked the first time the FTC acted solely on allegations that the caller did not honor its required company-specific DNC list. The FTC alleged that despite having written compliance procedures for its in-house and third-party telemarketers, Comcast and its contract telemarketers placed more than 900,000 telemarketing calls to numbers on Comcast’s company-specific DNC list. This alleged failure to implement a compliant DNC program, the FTC charged, was sufficient by itself to warrant a civil penalty of $900,000.

Companies conducting telemarketing activities must take notice that refraining from calling numbers listed in the National DNC Register is not, by itself, sufficient to avoid liability under the federal DNC laws and regulations. The FTC will also take enforcement action against companies for failing to honor company-specific DNC requests. Telemarketers — both in-house and contractors — must be instructed how to enter company-specific DNC requests, and companies must effectively suppress telemarketing calls to numbers on their company-specific DNC lists, including calls seeking to have the recipients remove their numbers from the lists.

- Richard Firestone and Don Stepka

Predictions on a Leibowitz Consumer Protection Bureau

President Obama has announced his intention to name Jon Leibowitz Chairman of the FTC. As a sitting FTC Commissioner, he does not need to go through the Senate approval process so he can step into his new role immediately. We expect to see Consumer Protection kicked up at least a notch or two under Leibowitz leadership. In particular, expect to see less emphasis on self-regulation and more consistent imposition of consumer redress. Commissioner Leibowitz has expressed his disagreement more than once over his colleagues’ clear focus on self-regulation to cure a variety of perceived harms. We do not predict he will replace self-regulation with enforcement in all areas, but we expect the two will not be mutually exclusive under his leadership. He has expressed his discomfort with relying entirely on self-regulation most recently in connection with the FTC Staff Report on Self-Regulatory Principles for Online Behavioral Advertising, warning that “to date data security has been too lax, privacy policies too incomprehensible, and consumer tools for opting out of targeted advertising too confounding. . . . Put simply, this could be the last clear chance to show that self-regulation can -- and will -- effectively protect consumers’ privacy in a dynamic online marketplace.” Leibowitz offered similar reservations about the effectiveness of self-regulation in his concurring statement with the FTC’s July 2008 report on Marketing Food to Children and Adolescents noting that while some companies had voluntarily taken steps to help curb the obesity epidemic that “others need to strengthen their voluntary measures . . . [because] a failure of self-regulation may make the next Congress -- and next administration -- more inclined towards government regulation.” Commissioner Harbour has agreed with these views so with the appointment of a new Commissioner by Obama to replace Leibowitz’s current clot, they will enjoy a majority position.

He will likely embrace and may even seek out expanded authority from Congress. Leibowitz has led the charge to obtain authority from Congress to amend the FTC Act to prohibit aiding or abetting a violation of any consumer protection statute enforced by the FTC. The Commission unanimously urged the repeal of the exemption for telecommunications companies regulated by the FCC Act, expressing its frustration to Congress at the difficulties this exemption has caused to investigate and seek remedies against all wrongdoers in, for example, the prepaid calling cards and mobile content marketing industries.

We will see an increase in remedies both in amounts paid generally and in monetary redress required for first time violators to settle with a consent order. Leibowitz has regularly spoken out about the need to punish Section 5 violators with more than an equitable remedy. His concurrence (again with Commissioner Harbour) in the Kmart case related to dormancy fees and expiration dates on store gift cards made clear he agreed with the injunctive result but thought the company should have disgorged ill-gotten profits and provided consumer redress. Leibowitz has been vocal before Congress of his belief that the FTC should have the power to seek civil penalties for all violations of the FTC Act rather than only in cases where there are violations of existing orders or in cases where statutes the FTC enforces authorizes penalties, such as the CAN-SPAM Act. In his testimony in support of the FTC Reauthorization that that would have expanded the FTC’s civil penalty powers, he said “Speaking for myself, I strongly support . . . the additional civil penalty authority. Your bill, I believe, will help give us the critical tools we need to successfully confront the antitrust and consumer protection challenges of the 21st century.”

Based on Obama’s priorities, we can expect to see the FTC Consumer Protection Bureau continuing its focus on consumer privacy and data security through both enforcement and policy making. Additionally, with the current financial crisis, the FTC has and will continue to focus on investigations in the subprime market and mortgage lending industry, as well as investigating those who prey on consumers through fraudulent mortgage rescue and debt collection relief schemes. With the expected revision to the Green Guides, we also expect to see enforcement activity related to environmental marketing claims.

Bottom line, expect more investigations and more penalties and redress for those believed to have violated Section 5. This makes it a prime time for companies to take a fresh look through a compliance-focused lens at their marketing campaigns and the means through which companies communicate to consumers to keep out from under the FTC’s radar screen.

The Fax of the Matter: Court Holds that Consumer Protection Case Not Proper for Class Certification

Last week,the Fifth Circuit overturned a district court decision granting class certification status in a case involving alleged violations of the Telephone Consumer Protection Act (TCPA).  The Court decided that the possibility of the large litigation breaking down into separate “mini-trials” was too great to allow it to proceed as a class action.  The decision highlights a current trend among courts: determining that cases involving consumer protection claims are too individualized to be certified as class actions.   

The TCPA bans the sending of unsolicited advertising materials from one fax machine to another without the consent of the recipient.  The defendant in the case, BioPay, allegedly sent over 4,000 fax messages to potential customers without their permission.  One such customer, fed up with the constant humming of the busy fax machine, filed a class action lawsuit in federal court. 

BioPay argued that class certification would be improper because the court would have to determine whether each and every recipient of the faxes gave their individual consent.  The Fifth Circuit agreed that the individualized nature of consent formed the central theme of the class action.  While the Court concluded that not all TCPA claims were unsuitable for class certification, this particular case required an individualized determination as to whether or not individual class members gave consent. 

Similar issues related to class certification in the context of consumer protection matters have arisen in other circuits as well.  Earlier this year, the Eighth Circuit reversed a district court ruling granting class certification for a class of heart valve recipients that claimed violations of two Minnesota consumer protection statutes.  The Court held that individualized determinations were necessary to determine which class members received which types of representations about the product.  Along the same lines, the Second Circuit recently reversed class certification status for a class of smokers who purchased “light” cigarettes, claiming they were deceived into thinking “lighter” meant “healthier.”  The Court noted that each plaintiff in the class would need to show they individually relied on the defendants’ deceptions in order to prevail.

Clearly class action certification is an emerging hot topic in the area of consumer protection.  Whether consumers relied upon an alleged misrepresentation and whether this can be shown on a class-wide basis is a key issue that counsels in many cases seeking early and limited discovery on the issue before full-blown discovery on the merits.  Stay tuned for more developments. . .

 

FTC Hangs Up on Prerecorded Calls

Tuesday, the FTC announced two amendments to the Telemarketing Sales Rule (TSR) related to prerecorded calls.  The changes are a result of a rulemaking proceeding initiated in 2004.  The first amendment bars telemarketing calls that deliver prerecorded messages, unless a consumer has expressly agreed to receive such calls.  The second amendment modifies the current method under the TSR for calculating maximum permissible levels of “call abandonment.”

Under the first amendment, prerecorded solicitations are prohibited whether a live person answers the phone, or a voicemail or other answering service picks up the call.  Sellers are allowed, however, to obtain signed, written agreements by consumers to receive prerecorded sales calls.  The prohibition does not apply to “informational” prerecorded messages, such as reminders of appointments or status of flights (calls to members of or previous donors to non-profits are also exempt).  Previously, the FTC had in effect a safe harbor that permitted prerecorded calls to existing customers.  The new amendment puts the FTC at odds with similar regulations administered by the FCC.  In response to this discrepancy, the FTC notes that the issue was raised in comments, but was considered and rejected by the Commission when it considered adopting a prerecorded call safe harbor, and that there is nothing new in the more recent comments that would warrant reconsideration of the Commission's previous conclusions.

With regard to the second amendment, the TSR now sets a limit on how often telemarketers can call consumers when no sales representative is actually available.  “Call abandonment” is a common side-effect when telemarketers place automated calls in anticipation of a sales associate being available to speak to the recipient within a certain number of seconds after the call is picked up.  The new amendment requires that at least 97% of telemarketers’ calls that are answered in person be connected to a live salesperson within two seconds of the consumer answering the call.  The amendment retains the current 3% permissible abandonment rate, but calculates the rate over a period of 30 days, rather than the current daily basis.

The provision requiring written permission from consumers to receive prerecorded solicitations will become effective on September 1, 2009.  The amendment modifying the method for calculating call abandonment rates becomes effective October 1, 2008.  As of December 1, 2008, all prerecorded telemarketing calls must provide an automated interactive opt-out option for consumers to end the call.