Soundboard Ass'n v. U.S. Fed. Trade Comm'n

• Decision Date: 24 April 2017
• Docket Number: Case No. 17-cv-00150 (APM).
• Citation: 251 F.Supp.3d 55
• Parties: SOUNDBOARD ASSOCIATION, Plaintiff, v. U.S. FEDERAL TRADE COMMISSION, Defendant.
• Court: U.S. District Court — District of Columbia

251 F.Supp.3d 55

SOUNDBOARD ASSOCIATION, Plaintiff,

v.U.S. FEDERAL TRADE COMMISSION, Defendant.

Case No. 17-cv-00150 (APM).

United States District Court, District of Columbia.

Signed April 24, 2017

Daniel W. Wolff, Crowell & Moring, Washington, DC, for Plaintiff.

Bradley Dax Grossman, Michele Arington, Leslie Rice Melman, Office of General Counsel, Burke W. Kappler, Federal Trade Commission, Washington, DC, for Defendant.

MEMORANDUM OPINION

Amit P. Mehta, United States District Judge

Almost every American who owns a telephone has experienced it: The phone rings, you pick up, there is a distinct pause, and then an automated voice begins to make you an unsolicited sales offer. Such calls, popularly known as "robocalls," are subject to heavy federal regulation. Generally speaking, a telemarketer cannot direct a robocall to a person unless that person first consents in writing to receipt of the call. Thus, while federal regulations do not absolutely bar robocalls, the written-consent requirement, along with other restrictions—collectively, "the robocall regulation"—render marketing via robocall prohibitively expensive.

But not all automated voices are created the same. The traditional robocall consists of a one-way telemarketing message that involves no live sales agent or other human interaction. "Soundboard" technology—the subject of this case—is different. It involves two-way communication between sales agent and consumer, in which the sales agent plays pre-recorded audio clips in response to the consumer's statements. Soundboard technology also allows the sales agent to break into the call and speak directly to the consumer, if needed. Say, for instance, a consumer asks for additional information about how to buy a product. A sales agent using soundboard technology first attempts to answer that inquiry by playing a pre-recorded audio file. If the pre-recorded response is unsatisfactory, then the sales agent can intervene and give the consumer a direct response. So, like a traditional robocall, soundboard technology uses automated, pre-recorded messages to convey information. But, it differs markedly from the traditional robocall in that a human being is on the other end of the line, who is sometimes revealed to the consumer and sometimes not.

Until recently, the robocall regulation did not apply to calls using soundboard technology. In September 2009, the staff of Defendant Federal Trade Commission ("FTC") issued an "informal" opinion letter, concluding that, because calls using soundboard technology enable the caller and recipient to have a two-way conversation, such calls are not subject to the robocall regulation. Seven years later, the agency changed course. Citing "widespread use of soundboard technology in a manner that does not represent a normal, continuous, two-way conversation between the call recipient and a live person," the FTC staff issued a second opinion letter in November 2016—which the court will refer to as the "November 2016 Letter"—that reversed its earlier position. The staff's view now was that telemarketing calls using soundboard technology are subject to the general prohibition placed on traditional robocalls. The FTC staff gave the telemarketing industry until May 12, 2017, "to make any necessary changes to bring themselves into compliance."

Plaintiff Soundboard Association is a trade group representing companies that manufacture and use soundboard technology. It asserts that the November 2016 Letter is unlawful for two reasons. First, Plaintiff asserts that the November 2016 Letter is a "legislative rule" that the FTC failed to promulgate through notice and comment, as required under the Administrative Procedure Act ("APA"). Second, it contends that the November 2016 Letter is an unconstitutional restriction on speech because the robocall regulation's written-consent requirement does not apply to pre-recorded solicitation calls between a non-profit charitable organization and its existing donors, but it does apply to such calls with potential first-time contributors. According to Plaintiff, that distinction renders the robocall regulation a content-based regulation of speech that cannot be justified under strict scrutiny.

The court rejects both claims. First, the court finds that, although the FTC's November 2016 Letter is a final, reviewable agency action, the Letter is not a legislative rule, but is, at most, an interpretive rule that the FTC was not required to issue through notice and comment under the APA. Second, the court concludes that the November 2016 Letter does no more than subject soundboard calls to valid time, place, and manner restrictions. The exemption provided to pre-recorded calls on behalf of charitable organizations to existing donors, but not to charitable organizations' calls to potential, first-time donors, is a content-neutral regulation of speech that easily satisfies the requisite intermediate scrutiny. Accordingly, the court denies Plaintiff's Motion for Summary Judgment and grants Defendant's Motion for Summary Judgment.

I. BACKGROUND

A. Factual Background

1. The "Robocall" Regulation

In 1994, Congress enacted the Telemarketing and Consumer Fraud and Abuse Prevention Act to protect consumers from deceptive and abusive telemarketing practices. See Telemarketing and Consumer Fraud and Abuse Prevention Act, Pub. L. No. 103–297 § 2, 108 Stat. 1545 (1994). The Act charges the U.S. Federal Trade Commission ("FTC") with prescribing rules regulating the telemarketing industry. 15 U.S.C. § 6102(a)(1). Pursuant to that authority, in 1995, the FTC promulgated the Telemarketing Sales Rule ("TSR"). Telemarketing Sales Rule, 60 Fed. Reg. 43,842 (Aug. 23, 1995), codified at 16 C.F.R. pt. 310. The TSR prohibits telemarketing calls at certain times of day, allows consumers to request placement on a "do-not-call" list, and imposes other requirements on telemarketers. See id. § 310.4(b)(ii), (c).

In 2008, the FTC amended the TSR to include new regulations on robocalls. See Telemarketing Sales Rule, Final Rule Amendments, 73 Fed. Reg. 51,164, 51,184 (Aug. 29, 2008). The amendments barred telemarketers from "[i]nitiating any outbound telephone call that delivers a prerecorded message" without first obtaining "an express agreement, in writing" from the consumer. 16 C.F.R. § 310.4(b)(1)(v). The written "express agreement" must include certain elements, such as language demonstrating the consumer's willingness to receive the robocalls, the consumer's telephone number, and the consumer's signature. Id. § 310.4(b)(1)(v)(A)(i)–(iv). The 2008 TSR Amendments further provide that, even when a telemarketer has an express agreement in hand, the telemarketer's robocall must adhere to strict caller disclosure and consumer opt-out notice requirements. Id. § 310.4(b)(1)(v)(B). This opinion refers to these restrictions collectively as "the robocall regulation."

The written consent requirement does not apply to pre-recorded calls made on behalf of charitable organizations to past donors or current members. Instead, the robocall regulation specifically provides that charitable organizations may place robocalls "to induce a charitable contribution from a member of, or previous donor to," the organization without obtaining an express written agreement from the member or donor. Id. In carving out this exception, the FTC explained that it sought to balance the interest of non-profit organizations in seeking donations via telephone with the privacy rights of consumers. It reasoned that prior donors had a reduced privacy interest because, by donating to the organization previously, they are deemed to have consented to receiving future charitable solicitation calls. 73 Fed. Reg. at 51,193 –94.

2. The FTC Applies the Robocall Regulation to Soundboard Technology

As noted, the traditional robocall is a one-way, pre-recorded communication that does not involve any human interaction. Soundboard technology, on the other hand, allows for a two-way conversation between the caller and recipient. After initiating a soundboard call, a live sales agent uses pre-recorded audio clips to respond to the recipient's statements and can, if necessary, opt to engage in a live conversation with the consumer. Thus, like a robocall, soundboard technology uses pre-recorded messages to market a good or service, but ultimately differs from a robocall because it depends on a live sales agent.

This technological distinction prompted questions within the telemarketing industry as to whether soundboard calls would be subject to the robocall regulation. Before the new regulations went into effect in September 2009, see 73 Fed. Reg. at 51,164, a telemarketing firm, Call Assistant LLC, sent a letter to the FTC seeking clarification of whether the technological distinction placed soundboard calls outside of the scope of the robocall regulation. Def.'s Opp'n to Pl.'s Appl. for Prelim. Inj., ECF No. 11 [hereinafter Def.'s Opp'n], Ex. 2, ECF 11–2. Call Assistant's letter specifically asked whether its "[soundboard] system conforms to the TSR Amendment." Id.

On September 11, 2009, the FTC responded with an "informal staff opinion" signed by Lois Greisman, the FTC's Associate Director of the Division of Marketing Practices ("September 2009 Letter"). Compl., ECF No. 1 [hereinafter Compl.], Ex. 2, ECF No. 1–3 [hereinafter Sept. 2009 Letter]. The September 2009 Letter stated that "the staff of the [FTC] has concluded that the 2008 TSR Amendments ... do not prohibit telemarketing calls using this technology." Id. Greisman explained that the robocall regulation "prohibit[s] calls that deliver a prerecorded message and do not allow interaction with call recipients .... Unlike the technology that you describe, the delivery of prerecorded messages in such calls does not involve a live agent who controls the content and continuity of what is said to respond to concerns, questions, comments—or demands—of the call recipient." Id. Quite naturally, the September...