Federal Regulations on Advertising:

Federal Regulations on Advertising: Phone, Fax, or E-mail By Jordan B. Hansell 700 Walnut, Suite 1600 Des Moines, Iowa 50309 Telephone: 515-283-8166 Facsimile: 515-283-8018 jbhansell@nyemaster.com

Disclaimer The following presentation does not represent legal advice. If you have specific questions concerning specific circumstances, please consult your attorney.

Modern Advertising Techniques With the explosion of technology in the recent decades, companies have found new ways to reach potential consumers Telemarketing Direct Fax E-mail

Modern Advertising Techniques (cont.) Though each of these new methods of advertising are cheap and efficient, they carry with them several compliance risks with the Federal laws regulating them Telephone Consumer Protection Act ( TCPA ) Junk Fax Prevention Act ( Fax Act ), which amended the TCPA Controlling the Assault of Non-Solicited Pornography and Marketing Act ( CAN-SPAM ) Telemarketing and Consumer Fraud and Abuse Prevention Act ( TCFAP ) This presentation only discusses the TCPA, Fax Act and CAN-SPAM; the TCFAP generally prohibits deceptive and other abusive telemarketing acts or practices and is not covered in this presentation.

Modern Advertising Techniques (cont.) Public Opinion: Telemarketers. The public hates them. It hates them even more than it hates France, low-flow toilets, or customer service. Dave Barry This presentation will hopefully help you stay on the good side of both the public and the law

Telemarketing and the TCPA

Telemarketing and the TCPA The TCPA, the Federal Communication Commission s ( FCC ) Rules, and the Federal Trade Commission ( FTC ) Rules regulate telemarketing These regulations cover some basic areas: The time of day telemarketers (businesses and individuals) may call The content of the call The use of automatic telephone equipment The creation of a National Do-Not-Call list

Telemarketing and the TCPA (cont.) First some definitions: Telephone solicitations are defined as the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person Calls or messages made to any person with that person s prior express permission or pursuant to an Established Business Relationship or EBR are excluded from this definition, as well as calls by a tax-exempt nonprofit organization

(cont.).) Telemarketing and the TCPA (cont.) Definitions (cont.): Established Business Relationship ( EBR ) in relation to telemarketing is: A prior or existing relationship formed by a voluntary two-way communication between a person or entity and a consumer either: On the basis of the consumer s purchase or transaction with the entity within the prior 18 months; or On the basis of an inquiry or application regarding products or services within the prior 3 months Businesses that use lead generators, i.e., businesses that search for prospective customers for others, do not have a valid EBR with a consumer when that consumer submits his contact information to the lead generator. If however, the lead generator were to clearly and conspicuously disclose, before the consumer gave his information, that the consumer may receive telemarketing calls as a result, as well as the maximum number of entities who may call, then there may be an EBR or express permission

Telemarketing and the TCPA (cont.) Basic Rules: Telephone solicitations are prohibited to phone numbers placed on the Do Not Call Registry, discussed in detail below All calls to residential telephones are prohibited between 9 p.m. and 8 a.m. This includes telephone solicitations and Calls to a person with an EBR or a person who gave consent In other words, although EBRs and calls based on express consent are excepted from the definition of telephone solicitations, even these calls are prohibited between 9 p.m. and 8 a.m.

Telemarketing and the TCPA (cont.) Basic Rules (cont.): All calls, whether live or recorded, must include: The caller s name; The organization for which the caller is working; and The contact information for the organization. The contact information for the organization. All the above information, as well as a business phone number, must be able to be displayed on a caller ID The phone number must be one that the consumer may call during regular business hours to request that the company no longer call the consumer

Telemarketing and the TCPA (cont.) Rules regarding automated telephone equipment: The TCPA prohibits using any automatic telephone dialing system or an artificial or recorded voice to call: An emergency telephone line The telephone line of a guest room or patient room of a hospital, health care facility, elderly home or similar establishment Cellular phones, pagers, mobile radio services or other radio common carrier service or any service for which the party is charged for the call

Telemarketing and the TCPA (cont.) Rules regarding automated telephone equipment (cont.): Artificial or prerecorded voice messages may not be used to call home phone numbers unless: Emergency call to ensure safety Prior express consent was given Non-commercial call Calls that don t include or introduce any unsolicited advertisements or constitute telephone solicitations, e.g. political ads Calls by tax-exempt nonprofit organizations; or Calls to consumers with an EBR with the caller

Telemarketing and the TCPA (cont.) Further TCPA prohibitions: May not disconnect an unanswered telemarketing call prior to at least 15 seconds or four rings May not abandon more than three percent of all telemarketing calls that are answered live by a person, measured over a 30-day period A call is abandoned if it is not connected to a live salesperson within two seconds of the called person s completed greeting If a salesperson is not available, a prerecorded message must be played within the two seconds, stating the name and telephone number of the entity on whose behalf the call was placed, and that the call was for telemarketing purposes ; after this statement, the call can be disconnected Use any technology to dial a number for the purpose of determining whether it is a fax or telephone line

Telemarketing and the TCPA (cont.) National Do Not Call Registry Created in 2003, the registry is nationwide, covering both interstate and intrastate calls Currently, the Registry has over 137 million phone numbers registered Consumers may register their personal phone numbers, including wireless phone numbers, on this list Once registered, callers are prohibited from making telephone solicitations to those numbers, with few exceptions

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Exemptions: Calls from political organizations Calls from charities (must be true nonprofits) FTC v. National Consumer Council, Inc.: National Consumer Council ( NCC ), a purported nonprofit, solicited customers through calling numbers on the Do Not Call Registry and other methods promising free debt counseling. In fact, NCC was simply trying to generate leads for for-profit firms, who then charged the consumers thousands of dollars in fees to enroll in their debt negotiation programs. A federal district court put NCC into receivership. The receiver has returned approximately $24 million in consumer funds and is winding down NCC s operations. Additional fines and fees were imposed in the millions of dollars.

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Exemptions (cont.): Calls from charities (cont.) FTC v. Debt Management Foundation Services, Inc. essentially the same facts as with NCC, a purported nonprofit was really attempting to generate leads for for-profit firms the final order included a suspended monetary judgment of $11,035,065; this included funds that were falsely taken from consumers Lesson the FTC will look beyond the label nonprofit Calls from telephone surveyors Calls from companies with an EBR with the consumer Calls between businesses

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Callers must access the Do Not Call Registry at least once every 31 days to synchronize their calling lists with an updated version of the Registry Callers may not call a number within a given area code unless the caller has first subscribed to and accessed that portion of the Registry that contains that area code

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Accessing the registry: The Registry can be accessed online at www.telemarketing.donotcall.gov The telemarketer must create a profile and provide identifying information Data can be accessed either by paying for certain area codes or for the entire database The access fees must be paid annually Current rates are $62 per area code (the first five area codes are free), and $17,050 for the entire database

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Penalties: Violators of the Do Not Call regulations and the other regulations discussed above may be subject to fines of up to $11,000 per violation Each call may be considered a separate violation There is a Safe Harbor for inadvertent mistakes In addition, individuals may sue in state court and seek injunctive relief and the greater of actual damages or $500 (which can be tripled if the violation was willful or knowing ) Class actions are permitted

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Safe Harbor provision: The offending telemarketer must show that: It has written procedures to comply with the Do Not Call requirements It trains its personnel in those procedures It monitors and enforces compliance with these procedures It maintains a company-specific list of telephone numbers that it may not call It accesses the Registry no more than 31 days before calling any consumer, and maintains records documenting this process Any call made in violation of the Do Not Call rules was the result of an error

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Examples of recent fines: FTC settlement with DirecTV included payment of a $5.3 million fine for violating the Do Not Call rules The telemarketers calling for DirecTV called consumers whose names were on the Do Not Call Registry One telemarketer failed to have a live sales representative respond to consumers greeting within two seconds, thus resulting in abandoned calls The complaint alleged DirecTV continued to employ the telemarketer even after it knew of the violations FTC settlements with two of DirecTV s telemarketers included fines for $50,000 and $25,000

Telemarketing and the TCPA (cont.) National Do Not Call Registry (cont.) Preemption The Federal Do Not Call rules preempt any less- restrictive state do not call regulations But states may adopt more restrictive intrastate regulations essentially free from federal interference E.g. Utah has defined telephone solicitations more broadly: Includes financial donations in the definition Includes certain solicitations from charitable organizations involving prizes, gifts, subscriptions, or other such incentives in the definition

Telemarketing and the TCPA (cont.) Company-Specific Do Not Call Lists: A consumer may request not to receive any future telephone solicitations from a telemarketer The organization making the call is then required to place them on a list, which must be maintained for five years

Marketing Via Facsimile and the Fax Act

Marketing Via Facsimile and the Fax Act The Junk Fax Prevention Act ( Fax Act ) is actually part of the TCPA

Marketing Via Facsimile and the Fax Act (cont.) The TCPA, as amended by the Fax Act, prohibits any person, including a business, individual, or tax-exempt nonprofit organization, from using a fax machine, computer, or other device to send an unsolicited advertisement (known as junk fax ) to another fax machine This includes both business fax machines and residential fax machines Unlike with telephone solicitations, nonprofit organizations are not exempt under the Fax Act An unsolicited advertisement is any material advertising the commercial availability or quality of any property, goods, or services that is transmitted to any person without that person s prior express invitation or permission Note the similarity to the definition of telephone solicitations This definition includes: Rate sheets on financial products transmitted to a potential borrower or potential broker Advertisements that promote goods or services at no cost

Marketing Via Facsimile and the Fax Act (cont.) A company is allowed to send commercial faxes without prior permission if the sender and the recipient have an EBR; or If the recipient s fax number was provided by the recipient, i.e. express permission; or If the recipient s fax number was made publicly available, as in a directory, advertisement, or website Unless the recipient has noted on such materials that it does not accept unsolicited advertisements at the fax number in question If the number is from the recipient s own directory, ad, or website, the sender can assume it has voluntarily made the number available If it is from another public source, the sender must take reasonable steps to verify that the recipient consented to having the number listed, such as by calling or e-mailing the recipient

Marketing Via Facsimile and the Fax Act (cont.) EBR under the Fax Act and the FCC rules is defined in almost the same way as under the general provisions of the TCPA, however, the Fax Act subjects the duration of an EBR s existence to any time limitations that the FCC determines appropriate. Currently the FCC has placed no time limit on the EBR, unlike the 3 month and 18 month limits for telemarketing EBRs The sender has the responsibility of proving an EBR As with telephone solicitations, a recipient may terminate an EBR at any time simply by requesting the sender refrain from sending further faxes

Marketing Via Facsimile and the Fax Act (cont.) An EBR or Express Permission is required: The FCC fined The Hot Lead, LLC $2,168,500 for sending 356 different unsolicited advertisements to at least 110 different consumers without having an existing EBR or express permission The FCC fined Extreme Leads, Inc. $1,377,000 for sending 218 different unsolicited advertisements to at least 132 different consumers without having an existing EBR or express permission Mexico Marketing, LLC was fined $1,133,000 in July of 2007 for sending unsolicited faxes and again in December of 2007 for $335,000, both times because it sent ads via fax to consumers without having an EBR or express permission

Marketing Via Facsimile and the Fax Act (cont.) Additional requirements of the Fax Act: Unsolicited commercial faxes must include a clear and conspicuous opt-out provision on the first page and provide a free twenty-four hour means for recipients to request removal from the distribution list The FCC regulations require the opt-out provision to be included on all fax advertisements, whether solicited or unsolicited Fax numbers to which any unsolicited advertising is delivered must be obtained either directly from the recipient or from a public source to which the recipient gave the number for publication Fax numbers already in the possession of the sender prior to July 9, 2005, are grandfathered in and thus may be used

Marketing Via Facsimile and the Fax Act (cont.) Additional requirements of the Fax Act (cont.): All faxes must identify the registered name and telephone number of the entity on whose behalf the fax is being sent and the date and time the fax was transmitted The Opt-out notice must be on the first page of the fax and explicitly state that the recipient can request that the sender not send any future faxes and that such request will be complied with within thirty days The opt-out means must be cost-free to the recipient Available 24 hours a day any day of the week The sender must comply with an opt-out request in the shortest reasonable time, at least within thirty days

Marketing Via Facsimile and the Fax Act (cont.) Professional or Trade Organizations There is no exemption for nonprofits from the Fax Act However, a message does not fall under the act if it is not commercial in nature Messages involving political or religious discourse are not prohibited under the Fax Act or the TCPA

Marketing Via Facsimile and the Fax Act (cont.) Preemption and State Law States clearly may regulate the transmission of fax advertisements intrastate and impose stricter standards E.g. Arizona have only three days to take a requester off company list E.g. Minnesota company must establish a 1-800 number for the consumer to call to request removal from the company list, the number must be displayed in 9 point font It is unclear whether state regulation of interstate transmission will be preempted

Marketing Via Facsimile and the Fax Act (cont.) Jurisdiction under the TCPA and the Fax Act The TCPA states that a private right of action is available in state court if otherwise permitted by the laws or rules of court of a State State courts are split in interpreting this: Majority view creates a private right of action unless a state affirmatively acts to eliminate it Minority view no private right of action exists unless state affirmatively acts to create it There is also a split on whether state courts have exclusive jurisdiction or whether such cases may be brought or removed to federal court

Marketing Via Facsimile and the Fax Act (cont.) Penalties: As with telemarketing violations, the FCC has authority to impose fines of up to $11,000 for each violation Again, as with telemarketing violations, an aggrieved individual may file a complaint in state court And, class actions are permitted They have become common See www.junkfax.org and www.tcpalaw.com for examples Unlike the Do Not Call provisions, there is no safe harbor in the Fax Act for errors The GOA has encouraged the FCC to improve its enforcement efforts; this is likely to result in heightened enforcement by the FCC

Marketing Via Facsimile and the Fax Act (cont.) Penalties (cont.): Fax broadcasters (those who send on behalf of others) can be liable if they have actual notice of the illegality or a high degree of involvement in the sender s fax message E.g. supplying the fax numbers, providing a source of fax numbers, making representations about the legality of faxing those numbers, or advising about how to comply with the junk fax rules. If the fax broadcaster is highly involved, it must provide its name on the fax. The sender is always liable, whether it uses a fax broadcaster or not. The sender is responsible for complying with opt-out notice requirements and honoring opt-out requests, even if the fax broadcaster doesn t forward those requests to the sender The sender should deal with this contractually

Marketing Via Facsimile and the Fax Act (cont.) Examples: First Choice Healthcare: FCC issued a notice of apparent liability to First Choice Healthcare, Inc. including a proposed fine of $776,500 for transmitting unsolicited fax advertisements First Choice had sent at least 98 unsolicited ads to 37 different consumers The faxes advertised health benefits at $59.95 per month! Unlimited PPO savings nationwide Call now for this yearly promotion!! This promotion ends Friday None of the recipients had EBRs with First Choice, nor did they give express permission to First Choice to send ads In fact, 22 consumers actually contacted First Choice to request that they stop sending the fax ads The notice of apparent liability was filed after First Choice sent back the initial citation to the FCC marked unclaimed

Marketing Via Facsimile and the Fax Act (cont.) Examples: Hooters of Augusta, Inc.: The class-action lawsuit, filed in 1995, finally went to the jury in March of 2001 after a long battle in the courts with various appeals and maneuvering by Hooters. As the jury determined that each of the 1,321 class members received six unsolicited faxed advertisements, Hooters was ordered to pay $9,000 each, for a total of $11,889,000 Dallas Cowboys: The Dallas Cowboys agreed to pay $1.73 million to settle a class-action lawsuit claiming the team violated state and federal consumer protection laws by hiring a telemarketing company to fax unsolicited advertising to thousands of people Plaintiff's lawyer said American Blast Fax sent the fax at least once to 125,000 locations. Those recipients were eligible for up to $500 for each unsolicited fax If any funds remain, the Cowboys agreed to donate it to charity

Marketing Via Facsimile and the Fax Act (cont.) Even the FCC is not immune from Junk Fax: The FCC sent this notice of citation to a Junk Fax Sender: Dear Mr. Katz: This is an official CITATION, issued pursuant to section 503(b)(5) of the Communications Act of 1934, as amended (Communications Act), for possible violations of the Telephone Consumer Protection Act of 19911 (TCPA) and the Federal Communications Commission's rules that implement that Act. It has come to our attention that your company recently transmitted to a telephone facsimile machine at the Federal Communications Commission an unsolicited advertisement for products, goods, or services offered by Advanced Cellular Communications, Inc. (see attachment). Pursuant to the TCPA and the Commission's Rules, it is unlawful to use a ``telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine.

E-mail Advertising and CAN-SPAM The CAN-SPAM Act was enacted in December of 2003 and became effective in January of 2004 CAN-SPAM seeks to create a uniform, national standard for the regulation of commercial electronic mail Commercial e-mail is defined as e-mail whose primary purpose is to advertise or promote a commercial product or service, including content on a website operated for commercial purpose Commercial e-mail does not include transactional and relationship messages It does include business to business e-mail It may include e-mail employee recruiting if the e-mail contains a link to the business website or touts the financial success and plans for growth of the company

E-mail Advertising and CAN-SPAM (cont.) There is no EBR exception under commercial e-mail definition The transactional/relationship exemption is not the same as an EBR It is defined narrowly and only includes e-mails that facilitate, confirm, or complete a transaction that the recipient previously entered into with the sender; or Provide information concerning an ongoing relationship between the sender and the recipient

E-mail Advertising and CAN-SPAM (cont.) CAN-SPAM seeks to limit fraudulent or abusive activity conducted over the Internet by: Establishing requirements for those who send commercial e-mail; Enumerating penalties for violators, including both spammers and companies whose products are advertised by spammers; and Giving consumers the right to request e-mailers to stop sending them spam

E-mail Advertising and CAN-SPAM (cont.) Mixed Messages: E-mail that includes both a commercial purpose and transactional/relationship purpose or a purpose that is neither commercial nor transactional/relationship is commercial e-mail if: A recipient would reasonably interpret the subject line to be a message promoting a product or service; The message s transaction or relationship content does not appear at or near the beginning of the message; or A recipient would reasonably interpret the body of the message as primarily being to advertise or promote a product or service

E-mail Advertising and CAN-SPAM (cont.) Specific Rules: Senders of commercial e-mail may not provide headers or subject lines (i.e. From and To routing information) that are materially false or misleading; Senders must: Clearly and conspicuously describe e-mail as an advertisement or commercial solicitation; Include a clear and conspicuous notice that the recipient can opt-out of receiving further commercial e-mail from the sender; and Provide the sender s valid physical postal address and a functioning return e-mail address (or another Internet-based response mechanism) that remains operational for at least thirty days after the transmission of the e-mail

E-mail Advertising and CAN-SPAM (cont.) Specific Rules (cont.): Senders and any person acting on the sender s behalf must honor opt-out requests within ten business days and may not transmit or assist in the transmission of commercial e-mail to that recipient absent the recipient s subsequent, affirmative consent Senders may not sell or transfer any e-mail addresses belonging to individuals who have opted-out, unless such transfer is to enable the entity to comply with CAN-SPAM Senders must mark e-mail containing sexually explicit material with the exact phrase SEXUALLY-EXPLICIT- CONTENT

E-mail Advertising and CAN-SPAM (cont.) Specific Rules (cont.): Commercial e-mails that are sent with the affirmative consent of the recipient still must contain the postal address of the sender and an opt-out mechanism, but they may eliminate the content identification statement In giving express consent to receive commercial e-mail, recipients must have an active choice to accept commercial e-mail solicitations, e.g. clicking an acceptance box, i.e., the box cannot be pre-selected

E-mail Advertising and CAN-SPAM (cont.) Enforcement: The FTC and the FCC have promulgated regulations based on CAN-SPAM The FTC has generally targeted senders of mass amounts of spam who violate multiple parts of CAN-SPAM, but recently it settled a case with Kodak Imaging Network, Inc. for simply failing to provide the required disclosures in its e-mails Penalties include fines of $250 per violation, up to a maximum of $2 million, the fine may be tripled for willful or knowing violations or aggravated violations Unlike with the TCPA and Fax Act, there is no private right of action for individuals and class actions are prohibited

E-mail Advertising and CAN-SPAM (cont.) Enforcement (cont.): There are additional penalties for commercial e- mailers who take further steps to circumvent the law, aggravated violations, such as by: Using scripts or other automated means to register multiple e-mail addresses to send commercial e-mail (address harvesting and dictionary attacks); Relaying e-mails through a computer or network without permission; and Using a computer without authorization to send commercial e-mail

E-mail Advertising and CAN-SPAM (cont.) Enforcement (cont.): Example: In 2004, the FTC sued Phoenix Avatar for marketing a bogus diet patch through large amounts of spam The parties settled for $20,000, which suspended the $230,000 judgment that likely would have resulted Combating spam has proven to be the most difficult consumer protection problem the FTC has faced Technology, according to the FTC, may be the best protection available

E-mail Advertising and CAN-SPAM (cont.) CAN-SPAM authorizes the US Department of Justice to pursue criminal sanctions, including imprisonment, for senders of commercial e-mail who: Use another computer without authorization to send Commercial e-mail Use a computer to relay commercial e-mail so as to deceive or mislead recipients or ISPs about their true origin Falsify header information and transmit such e-mail, or register for multiple e-mail accounts or domain names using information to falsify the identity of the true registrant; and Falsely represent themselves as owners of multiple ISP addresses, which are used to transmit commercial e-mail messages

E-mail Advertising and CAN-SPAM (cont.) ISPs are also permitted to sue violators in federal district court to enjoin further violations and/or recover actual or statutory damages Statutory damages are set at: $100 per violation for transmitting materially false or misleading header information $25 per violation for any other violation Up to a maximum of $1 million

E-mail Advertising and CAN-SPAM (cont.) Preemption CAN-SPAM preempts state law, but states are allowed to enforce parts of CAN- SPAM State laws regarding fraudulent and deceptive acts and computer crimes remain in effect

Best Practices

Best Practices TCPA: Synchronizing calling lists with the Do Not Call Registry every 30 days Develop company procedures and train employees to comply with the TCPA to ensure no calls are made to numbers on the Do Not Call list Maintain a Company Do-Not-Call list for those consumers who make specific requests Disclose all material information in the call, included the caller s name, company name, goods or services being offered, and any information that would affect the consumers decision to purchase Maintain records for at least 24 months Call only between 8 a.m. and 9 p.m.

Best Practices (cont.) Fax Act: Develop a list of fax numbers belonging to consumers with whom or from whom: You have an EBR; or You received express permission to send fax ads Ensure any fax ads sent contain: Company s registered name and telephone number Date and time of fax Opt-out notice on the first page with a toll-free number or e-mail address to reply to, both must be available 24 hours a day, seven days a week When an opt-out request is received, immediately add the number to a Company Do Not Fax list

Best Practices (cont.) CAN-SPAM: Clearly identify the sender of the e-mail Disclose the sender s actual point-of-origin e-mail address Do not use false or misleading routing information Do not conceal routing information Do not use false or misleading information in the subject line of the e-mail message Provide a mechanism for opting-out, including a return e-mail address, toll-free number, and physical address

Best Practices (cont.) CAN-SPAM (cont.): Immediately remove an individual from e-mailing lists when an opt-out request is received Maintain records of recipients who opt-out Do not harvest e-mail addresses from an Internet website without first reading the website s terms of use Train personnel and maintain records of the training Maintain records of compliance with the law