Utah Bar Journal

A. THE TELEPHONE CONSUMER PROTECTION ACT OF 1991

The FCC rules on fax ads arise out of the Telephone Consumer Protection Act of 1991, 47 U.S.C. Section 227, (the "TCPA"). The TCPA was enacted in an effort to address concerns about the growing number of telephone and facsimile telemarketing practices that were thought to be an invasion of consumer privacy and even a risk to public safety. While the principal focus of the TCPA is on telemarketing practices (e.g., restricting the use of automatic telephone dialing systems and artificial or prerecorded messages), the TCPA also prohibited the use of telephone facsimile machines, computers and other devices in sending unsolicited advertisements to another facsimile machine. The TCPA further directs the FCC to prescribe the rules and regulations necessary to implement the TCPA's statutory restrictions.

The FCC initially published rules implementing the TCPA on December 20, 1992. Later, on two subsequent occasions, August 7, 1995, and April 10, 1997, additional rules for the TCPA were published by the FCC. Most recently, as of July 25, 2003, the FCC has published new rules for facsimile advertisements changing the requirements for what constitutes legal compliance with the TCPA. The new fax ad rules specifically address the following provision of the TCPA, 47 USC Section 227(b)(1)(C):

"It shall be unlawful for any person within the United States to use any telephone, facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine."

Existing Business Relationships ("EBR")

The term "unsolicited advertisement" is defined in the TCPA as "any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that person's prior express invitation or permission." Initially, in 1992, the FCC issued rules specifying that an existing business relationship ("EBR") implied consent or permission for purposes of the TCPA facsimile advertising requirements. For the last 11 years, the FCC standard of an EBR "implied consent" was used as an important defense against private, state and federal actions under the TCPA. The FCC's "EBR exception" has allowed for the continued wide spread use of fax ads, even in the face of some very large class-action judgments.

Enforcement Actions

One of the important aspects of the TCPA is that it specifically allows for enforcement by state and/or private actions. First, the TCPA allows for enforcement by the state attorney general or other state official, and allows the states to enact and enforce more stringent restrictions than provided under the TCPA. Second, the TCPA provides a right of private action to consumers who receive illegal facsimiles. Any action by a consumer under the TCPA may be for $500.00 in damages for each violation, or for the actual monetary loss, which ever is greater. However, if the court finds that the facsimile transmitter "willfully or knowingly" violated the TCPA, the court is directed to award an amount equal to not more than three times the amount available in actual or statutory damages.

Recently, in a number of class action law suits, litigators have been able to obtain judgments or settlements for many millions of dollars using the TCPA statutory damage formula. On March 21, 2001, a jury found that Hooters of Augusta, part of a national chain of restaurants, had "willfully or knowingly" faxed unsolicited advertisements to Sam G. Nicholson, a Georgia attorney, and to thousands of other recipients. Judgment for damages in the amount of $11.9 million was granted against Hooters. In another case, the Dallas Cowboys agreed to pay a settlement of $1.73 million in a class action law suit under the TCPA for an advertising campaign that was handled by a third-party facsimile broadcaster, American Blast Fax. In a very recent case, AMF, which runs a chain of bowling alleys, agreed to pay a settlement of up to $1 million cash and $1.5 million in coupons for sending out as many as 352,000 unsolicited faxes. Even before the new FCC rules of last July, the "fax blast" law suits have been so successful in some cases that TCPA litigation is starting to become a cottage industry. This trend will now probably accelerate as the "EBR exception" is eventually abolished by the FCC.

Transmitter Identification

Before going on to the new FCC rules, it is important to point out that the TCPA also required the clear identification of the facsimile transmitter on the faxed materials. In part the TCPA states that "it shall be unlawful for any person within the United States to use a computer or any other electronic device, to send any messages, via a telephone facsimile machine, unless such person clearly marks in a margin at the top or bottom of each transmitted page of the message or on the first page on the transmission, the date and time it is sent and an identification of the business or other entity or individual sending the message and the telephone number of the sending machine or of such business or other entity or individual." Telephone facsimile machines manufactured on or after December 20, 1992, must clearly mark such identifying information on each transmitted page.

B. THE NEW FCC FACSIMILE ADVERTISING RULES

Now, having established the basis of the FCC fax ad rules under the TCPA, let's look at the new fax ad rules published by the FCC on July 25, 2003 (CG Docket No. 02-278). The new fax-ad rules were originally scheduled to become effective as of August 24, 2003, thirty days after publication, but because of certain business concerns, the effective date has now been postponed until January 1, 2005 (CG Docket No. 02-278, ORDER ON RECONSIDERATION, Adopted and Released: August 18, 2003.) While the primary purpose of these new FCC rules was to establish with the FTC a national Do-Not-Call Registry for consumers who wish to avoid unwanted telemarketing calls, the FCC also revised its earlier determination that an established business relationship or EBR constituted by implication the "express invitation or permission to receive an unsolicited fax." In addition, the FCC went on to clarify certain other points in connection with facsimile equipment and fax broadcasters.

Addressing Perceived Abuses

This latest ruling under the TCPA comes now more than ten years after the original set of rules. Over the last decade, the telemarketing industry has undergone significant changes in technologies and methods. Despite a general ban on unsolicited fax advertising, fax advertisements have proliferated as have facsimile service providers (or "fax broadcasters"), enabling sellers to send advertisements to thousands, even millions, of destinations with relatively little time or money invested by the sender. However, these unsolicited faxes impose costs on the recipients and tie up receiving fax machines, resulting in substantial inconvenience and disruption, and in some cases involving hospitals, police departments and other sensitive private and public service lines, unsolicited faxes may have serious implications for public health and safety. After a period of public review and comment, the FCC has now published new rules under the TCPA for fax advertising. In regards to such rules, the FCC states:

"The Commission has determined that the TCPA requires a person or entity to obtain the prior express invitation or commission of the recipient before transmitting an unsolicited fax advertisement. This express invitation or permission must be in writing and include the recipient's signature. The recipient must clearly indicate that he or she consents to receiving such faxed advertisements from the company to which permission is given, and provide the individual or business's fax number to which faxes may be sent." CG Docket No. 02-278, paragraph 187

In addition the FCC states:

"We now reverse our prior conclusion that an established business relationship provides companies with the necessary express permission to send faxes to their customers. As of the effective date of these rules (now January 1, 2005), the EBR (established business relationship) will no longer be sufficient to show that an individual or business has given their express permission to receive unsolicited facsimile advertisements." CG Docket No. 02-278, paragraph 189.

Express Written Authorization

In order for a fax advertiser to meet the new requirements, the advertiser must obtain the following "express consent" from each recipient of any fax advertisements:

1. Written authorization,

2. With recipient's signature, and

3. Including specific fax numbers to which advertisements can be sent.

The permission cannot be given in the form of a "negative option." Instructing recipients, by mail or by fax, that they can be dropped from the fax advertising list by contacting the sender at a toll-free telephone number or fax number, is a "negative option" and is not an acceptable means of obtaining permission. In addition, membership in a trade association or the mere distribution or publication of a telephone facsimile number is not the equivalent of prior express permission to receive fax advertisements. An example of an acceptable method for obtaining "express consent" would be for the fax advertiser to request a fax number on an application form with clear instructions that advertisements will be sent to such number and that the individual or business agrees to receive facsimile advertisements at such number. As long as the application is signed by the recipient, it would constitute the necessary prior express permission needed to send fax advertisements to that individual or business.

Miscellaneous New Rules

For identification and liability purposes, the latest FCC rules have expanded the coverage of the TCPA to "fax broadcasters" to the extent that they are involved to a high degree (defined below), or have actual notice of the illegal use and fail to take appropriate steps to comply with the TCPA. A fax broadcaster is defined as any entity which for a fee assists any other entity in advertising to a large number of telephone facsimile machines. In connection with "common carriers," the same rule applies. Common carriers, defined as the entity providing the transmission lines or network, are not liable except to the extent there is a high degree of involvement or actual notice of illegal transmissions together with failure to take appropriate steps to prevent such illegal transmissions.

In clarifying the "high involvement" cases, the FCC states: "...that if a fax broadcaster is responsible for the content of the message or for determining the destination of the message (i.e., supplying the list of facsimile numbers to which the faxes are sent), it should be identified on the facsimile, along with the entity whose products are advertised." CG Docket No. 02-278, paragraph 203. This means that in high-involvement cases both the entity advertising as well as its fax broadcaster must be identified in the margins of the facsimile transmission materials. If any entity is identified with a "d/b/a" ("doing business as") name, it must also somewhere indicate its official legal name as filed with state corporate registration offices or comparable regulatory entities.

In addition, the FCC has issued a ruling clarifying the definition of what is a telephone facsimile machine. The FCC states: "We conclude that faxes sent to personal computers equipped with, or attached to, modems and to computerized fax servers are subject to the TCPA's prohibition on unsolicited faxes." CG Docket No. 02-278, paragraph 200. However, one important exception to the TCPA requirements is that, while it does apply to facsimile transmissions from or to a computer terminal, the TCPA does not apply to messages sent via e-mail or on the Internet. However, effective January 1, 2004, emails are now regulated and restricted by the new CAN-SPAM Act of 2003, which is beyond the scope of this article.

In Conclusion

The FCC believes that given the cost shifting and interference caused by unsolicited faxes, protecting the interests of those who would otherwise be forced to bear the burdens of unwanted faxes outweighs the need to protect the interests of the companies that wish to advertise via fax. As long as public opinion continues to support the FCC in this balancing of priorities, fax advertisers must be prepared, by January 1, 2005, to get signed, written consents, before sending the fax ads, from each potential recipient of any fax ads or risk potentially serious liability under the TCPA.