Do Not Call List Is Not the Only Victor

After a furious round of litigation at the trial and appellate court levels, the national Do Not Call Registry emerged in mid-October intact and enforceable.

In the first few weeks of the Registry's effective date, the U.S. Federal Trade Commission (FTC) received over 50,000 consumer complaints. Commission officials midmonth were reviewing these complaints for patterns and repeat violators, and hoped through these efforts to be in a position to bring the first enforcement actions before the end of the year.

The national Do Not Call Registry has been wildly popular with consumers. Nearly 60 million had signed up for the Registry by the middle of last month, and consumer advocates, privacy activists and enforcement officials expected that number to continue growing.

Naturally, the high level of interest caught the attention of federal and state legislators, who strongly support it and the federal government's efforts to protect consumers' privacy against unwanted solicitation telephone calls. In fact, when a District Judge in Oklahoma struck down the Registry as being beyond the scope of the FTC's authority, Congress passed legislation in a single day expressly stating and providing the FTC's authority in the matter.

Quieting Some Free Speech?

But the Oklahoma District Judge's call wasn't the Do Not Call Registry's only early hurdle to clear. Prior to taking effect, the Registry also was subjected to a constitutional challenge. On Sept. 25, a federal court in Colorado ruled that the Registry, which the FTC included in its recent amendments to the Telemarketing Sales Rule (the TSR), violates the First Amendment. Specifically, the court ruled that the FTC, by exempting charitable and political solicitors from the Do Not Call Registry, imposed a content-based restriction on speech. The Do Not Call Registry applies to commercial solicitations only. By contrast, any request to cease calls from charitable or political organizations (even those that are made by professional, for-profit telemarketers on behalf of nonprofit organizations) is not subject to the Registry. The court ruled that nothing in the agency's rulemaking record or the record before the court would justify this differential treatment. Accordingly, the court held the TSR's Registry imposes a regulatory burden on commercial speech that violates the First Amendment.

The following day, the FTC appealed the decision and also filed a motion for an emergency stay of the portion of the court's order that enjoins the FTC from implementing the Registry. The federal 10th Circuit Court of Appeals responded promptly with a 24-page opinion that appears to settle the constitutional issue, even though it is couched in the form of a stay of the district court's order. The court held that the FTC had demonstrated a likelihood of success on the merits at the trial level, and ordered a stay on the trial court's order enjoining the FTC from implementing the Do Not Call Registry. To that end, the 10th Circuit held that the FTC's Registry list meets the Central Hudson test for restrictions on commercial speech despite its differential treatment of calls from businesses, and calls from charities and political organizations. The court looked beyond the regulatory record to support the FTC's decision to treat these calls differently, finding helpful language in other rules, laws and Congressional reports.

With the issue of support in the rulemaking record disposed of, the court had little trouble finding that there is an appropriate fit under Central Hudson between the “substantial government interest” (allowing consumers to prevent unwanted calls, thereby preventing abusive and coercive sales practices and protecting residential privacy) and the FTC's rules. In doing so, however, the court made very clear that the fit need not be perfect. Rather, the court expressly allowed itself room for making “legislative judgments.”

Canning Spam with CAN SPAM

With the constitutional uncertainty regarding the Registry then resolved, and in light of the overwhelming consumer support for the Registry, legislators have turned their attention to the possibility of a similar “do not spam” list. Momentum for such a list had seemed to slow after the FTC chairman expressed doubts about the practical problems associated with enforcing such a registry, but consumer enthusiasm for the do not call list appeared to have persuaded Congress to push ahead. On Oct. 22, by a vote of 97-0, the Senate passed the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN SPAM Act) (S 877), which would direct the FTC to, within six months of enactment, submit to the Senate and House Commerce committees a report that:

• Sets forth a plan and timetable for establishing a nationwide marketing do not e-mail registry;
• Includes an explanation of any practical, technical, security, privacy, enforceability or other concerns that the Commission has regarding such a registry; and
• Includes an explanation of how the registry would be applied with respect to children with e-mail accounts.

The CAN SPAM Act also includes:

• A requirement that senders of marketing e-mail include a return address so the consumer can stop the e-mails;
• A requirement that unsolicited messages include clear notification that the message is an advertisement, and a valid physical postal address;
• A prohibition on false and deceptive headers and subject lines so that consumers can immediately identify the true source of the message, and so that Internet companies can identify high-volume spam senders;
• A provision to triple monetary damages imposed on spammers who use automatic software programs to “harvest” e-mail addresses from Internet Web sites, and use dictionary-attack software to send messages to a succession of randomly generated e-mail addresses in search of real recipients;
• Enforcement by the Federal Trade Commission, state attorneys general and Internet service providers (ISPs) ' but not consumers ' with the potential for multimillion dollar judgments;
• Criminal penalties for hacking into somebody else's computer to send bulk spam, using open relays to send bulk spam with an intent to deceive. Also, for: falsifying header information in bulk spam; registering for five or more e-mail accounts using false registration information and using these accounts to send bulk spam; and sending bulk spam from somebody else's Internet protocol addresses;
• A provision directing the FTC to write rules for mandatory labeling of pornographic messages; and
• A directive that the FTC consider mandatory labeling for unsolicited e-mail generally, as well as possible financial rewards for tech-savvy citizens who help trace hard-to-find spammers.

President Will Dig into CAN SPAM

As of late October, news reports indicated that the House leadership is likely to bring legislation similar to the CAN SPAM Act to the floor for a vote. President Bush seems likely to sign any such legislation.

If the CAN SPAM Act becomes law, it would relieve marketers of the obligation to keep up with, and follow, the 36 state laws regulating unsolicited commercial e-mail. This includes the new California anti-spam law, set to go into effect on Jan. 1. That law prohibits individuals or businesses from sending e-mail advertisements or promotions to or from an e-mail address in California, unless the recipient has expressly agreed to receive e-mails from the sender and from the advertiser whose products and services are the subject of the advertisement. (The California law provides an exemption for e-mail sent to consumers with whom the advertiser has a “preexisting or current business relationship.”)

The House reportedly proposed making Jan. 1 the effective date for the federal bill, rather than 120 days after enactment, as in the Senate bill, in order to ensure pre-empting the California law ab initio. Legitimate e-mail marketers, of course, would welcome that action.

And the Big Question Is …

The $64,000 question is whether, assuming the CAN SPAM bill is enacted, the FTC will support the creation of a do not spam list. The Commission's chairman has publicly expressed doubts about such a registry because of the practical problems with enforcing it against the most nefarious spammers. The Commission would be likely to raise similar issues in its report to Congress, but having passed a bill that allows for a do not spam registry, it seems unlikely that Congress would back down from pushing the FTC to implement it, even if it is flawed. This would seem especially so if the CAN SPAM Act becomes law soon, because the FTC's report would land in Congress' lap just before the November 2004 elections.

After a furious round of litigation at the trial and appellate court levels, the national Do Not Call Registry emerged in mid-October intact and enforceable.

In the first few weeks of the Registry's effective date, the U.S. Federal Trade Commission (FTC) received over 50,000 consumer complaints. Commission officials midmonth were reviewing these complaints for patterns and repeat violators, and hoped through these efforts to be in a position to bring the first enforcement actions before the end of the year.

The national Do Not Call Registry has been wildly popular with consumers. Nearly 60 million had signed up for the Registry by the middle of last month, and consumer advocates, privacy activists and enforcement officials expected that number to continue growing.

Naturally, the high level of interest caught the attention of federal and state legislators, who strongly support it and the federal government's efforts to protect consumers' privacy against unwanted solicitation telephone calls. In fact, when a District Judge in Oklahoma struck down the Registry as being beyond the scope of the FTC's authority, Congress passed legislation in a single day expressly stating and providing the FTC's authority in the matter.

Quieting Some Free Speech?

But the Oklahoma District Judge's call wasn't the Do Not Call Registry's only early hurdle to clear. Prior to taking effect, the Registry also was subjected to a constitutional challenge. On Sept. 25, a federal court in Colorado ruled that the Registry, which the FTC included in its recent amendments to the Telemarketing Sales Rule (the TSR), violates the First Amendment. Specifically, the court ruled that the FTC, by exempting charitable and political solicitors from the Do Not Call Registry, imposed a content-based restriction on speech. The Do Not Call Registry applies to commercial solicitations only. By contrast, any request to cease calls from charitable or political organizations (even those that are made by professional, for-profit telemarketers on behalf of nonprofit organizations) is not subject to the Registry. The court ruled that nothing in the agency's rulemaking record or the record before the court would justify this differential treatment. Accordingly, the court held the TSR's Registry imposes a regulatory burden on commercial speech that violates the First Amendment.

The following day, the FTC appealed the decision and also filed a motion for an emergency stay of the portion of the court's order that enjoins the FTC from implementing the Registry. The federal 10th Circuit Court of Appeals responded promptly with a 24-page opinion that appears to settle the constitutional issue, even though it is couched in the form of a stay of the district court's order. The court held that the FTC had demonstrated a likelihood of success on the merits at the trial level, and ordered a stay on the trial court's order enjoining the FTC from implementing the Do Not Call Registry. To that end, the 10th Circuit held that the FTC's Registry list meets the Central Hudson test for restrictions on commercial speech despite its differential treatment of calls from businesses, and calls from charities and political organizations. The court looked beyond the regulatory record to support the FTC's decision to treat these calls differently, finding helpful language in other rules, laws and Congressional reports.

With the issue of support in the rulemaking record disposed of, the court had little trouble finding that there is an appropriate fit under Central Hudson between the “substantial government interest” (allowing consumers to prevent unwanted calls, thereby preventing abusive and coercive sales practices and protecting residential privacy) and the FTC's rules. In doing so, however, the court made very clear that the fit need not be perfect. Rather, the court expressly allowed itself room for making “legislative judgments.”

Canning Spam with CAN SPAM

With the constitutional uncertainty regarding the Registry then resolved, and in light of the overwhelming consumer support for the Registry, legislators have turned their attention to the possibility of a similar “do not spam” list. Momentum for such a list had seemed to slow after the FTC chairman expressed doubts about the practical problems associated with enforcing such a registry, but consumer enthusiasm for the do not call list appeared to have persuaded Congress to push ahead. On Oct. 22, by a vote of 97-0, the Senate passed the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN SPAM Act) (S 877), which would direct the FTC to, within six months of enactment, submit to the Senate and House Commerce committees a report that:

• Sets forth a plan and timetable for establishing a nationwide marketing do not e-mail registry;
• Includes an explanation of any practical, technical, security, privacy, enforceability or other concerns that the Commission has regarding such a registry; and
• Includes an explanation of how the registry would be applied with respect to children with e-mail accounts.

The CAN SPAM Act also includes:

• A requirement that senders of marketing e-mail include a return address so the consumer can stop the e-mails;
• A requirement that unsolicited messages include clear notification that the message is an advertisement, and a valid physical postal address;
• A prohibition on false and deceptive headers and subject lines so that consumers can immediately identify the true source of the message, and so that Internet companies can identify high-volume spam senders;
• A provision to triple monetary damages imposed on spammers who use automatic software programs to “harvest” e-mail addresses from Internet Web sites, and use dictionary-attack software to send messages to a succession of randomly generated e-mail addresses in search of real recipients;
• Enforcement by the Federal Trade Commission, state attorneys general and Internet service providers (ISPs) ' but not consumers ' with the potential for multimillion dollar judgments;
• Criminal penalties for hacking into somebody else's computer to send bulk spam, using open relays to send bulk spam with an intent to deceive. Also, for: falsifying header information in bulk spam; registering for five or more e-mail accounts using false registration information and using these accounts to send bulk spam; and sending bulk spam from somebody else's Internet protocol addresses;
• A provision directing the FTC to write rules for mandatory labeling of pornographic messages; and
• A directive that the FTC consider mandatory labeling for unsolicited e-mail generally, as well as possible financial rewards for tech-savvy citizens who help trace hard-to-find spammers.

President Will Dig into CAN SPAM

As of late October, news reports indicated that the House leadership is likely to bring legislation similar to the CAN SPAM Act to the floor for a vote. President Bush seems likely to sign any such legislation.

If the CAN SPAM Act becomes law, it would relieve marketers of the obligation to keep up with, and follow, the 36 state laws regulating unsolicited commercial e-mail. This includes the new California anti-spam law, set to go into effect on Jan. 1. That law prohibits individuals or businesses from sending e-mail advertisements or promotions to or from an e-mail address in California, unless the recipient has expressly agreed to receive e-mails from the sender and from the advertiser whose products and services are the subject of the advertisement. (The California law provides an exemption for e-mail sent to consumers with whom the advertiser has a “preexisting or current business relationship.”)

The House reportedly proposed making Jan. 1 the effective date for the federal bill, rather than 120 days after enactment, as in the Senate bill, in order to ensure pre-empting the California law ab initio. Legitimate e-mail marketers, of course, would welcome that action.

And the Big Question Is …

The $64,000 question is whether, assuming the CAN SPAM bill is enacted, the FTC will support the creation of a do not spam list. The Commission's chairman has publicly expressed doubts about such a registry because of the practical problems with enforcing it against the most nefarious spammers. The Commission would be likely to raise similar issues in its report to Congress, but having passed a bill that allows for a do not spam registry, it seems unlikely that Congress would back down from pushing the FTC to implement it, even if it is flawed. This would seem especially so if the CAN SPAM Act becomes law soon, because the FTC's report would land in Congress' lap just before the November 2004 elections.