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Mainstream Marketing Services, et al. v. Federal Trade Commission: Resources and Legal Analysis

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by Susan Bee
Last updated January 20, 2004

On November 10, 2003, the Tenth Circuit U.S. Appeals Court in Tulsa, OK heard oral arguments in Mainstream Marketing Services, et al. v. Federal Trade Commission. In this case, two telemarketing firms (Mainstream Marketing Services, Inc. TMG Marketing, Inc.) and a trade group (American Teleservices Association) challenged the constitutionality of the FTC’s Do Not Call Registry (DNCR). The judges are David M. Ebel, Stephanie K. Seymour and Robert H. Henry.

In MMS v. FTC, the Tenth Circuit consolidated four cases for an expedited hearing. The first two are appeals of rulings by two different District Courts: Mainstream Mktg. Servs. v. FTC,2003 WL 22213517 (D. Colo. Sept. 25,) and U.S. Security v. FTC, 2003 WL 22203719 (W.D. Okla. Sept. 23, 2003). The other two are separate reviews of the same FCC order: Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014 (2003). The Tenth Circuit is expected to issue a ruling any time between January and May of 2004.

The primary disputes in the MMS case are whether the FTC crafted the DNCR narrowly enough to adequately protect corporate telemarketers’ “commercial speech” and whether the FTC’s failure to include non-commercial charitable organizations in the DNCR amounted to an unconstitutional “content-based” restriction on speech.

The term ‘commercial speech” describes speech used primarily by corporations to disseminate information about goods and services. Courts have held that commercial expression is valued because it helps consumers and furthers social interests by allowing the fullest possible dissemination of information regarding goods and services. Central Hudson Gas v. Public Service Commission of NY (1980). The courts have found that consumer interest in commercial information may be more keen than it is in the day’s most urgent political debate. Rubin v. Coors Brewing Co. (1976).

Evaluating the Constitutionality of Commercial Speech Restrictions

The prevailing standard used to determine whether a commercial speech restriction is constitutional was established by the U.S. Supreme Court in Central Hudson. The Court identified a three-step test to determine whether restrictions applied to lawful and non-misleading commercial speech are constitutional. Under the “Hudson test,” regulation of commercial speech is constitutional if, and only if:

  1. the government asserts a substantial interest to be achieved by the restrictions;
  2. the restriction directly advances that governmental interest; and
  3. the restriction is narrowly tailored to meet that interest.

Neither Judge Nottingham (Colorado District Court) nor the Tenth Circuit panel had trouble finding that the FTC has a legitimate and substantial interest in protecting citizens’ privacy, or the right to be left alone in their own homes. Both Courts ruled that the government’s interest in protecting in-home privacy is sufficient to justify a restriction on speech. The Courts seemed to virtually ignore one of the most egregious arguments the telemarketers made: that the DNCR is unconstitutional because it regulates speech based on the speech’s unpopularity. Brief for MMS, p. 22. This is an apparent attempt to ride the coattails of constitutional protections on political speech, which can be particularly important when unpopular. But the FTC clearly is not basing its regulation on the unpopularity of the speech, but rather on its invasion of in-home privacy, which makes the speech unpopular.

Both Courts made this ruling despite the telemarketers arguments that citizens should be left to protect themselves from unwanted telemarketing calls by using technological alternatives, such those offered by local telephone providers or caller ID. The FTC countered, arguing it is justified in creating the DNCR because these technological measures are too costly to citizens and do not approach the degree of protection the DNCR can provide. The FTC argued that far from being obvious alternatives to commercial speech regulation, these technologies demonstrate the magnitude of the problem. (Consolidated Opening Brief of Appellants, page. 43-44)

Turning to the rest of the second two prongs of the Hudson analysis, together, the final two factors require there be a “fit between the legislature’s ends and the means chosen to accomplish those ends.” (United States v. Edge Broad, 1993). The government bears the burden of demonstrating both a substantial interest and the fit between that interest and the challenged restriction. Utah Licensed Beverage Ass’n v. Leavitt (10th Cir. 2001). The Hudson test does not require that the regulation be the least restrictive means of achieving the interest asserted, but only that it be narrowly tailored to meet the desired objective. Board of Trustees of State University of NY v. Fox (1989).

The telemarketers advance several theories about why the registry does not directly advance the government’s interest in protecting privacy and is not narrowly tailored. The first reason is that it is numerically under-inclusive; it only affects unwanted commercial calls, even though charitable contribution calls are equally invasive and may be equally unwanted by many people. In the District Court, Judge Nottingham ruled that numeric under-inclusiveness is not constitutionally fatal. Governments are not required to fix all the problems before they can fix any problem.

In a related argument, the telemarketing industry honed in on a First Amendment principle that the government is not supposed to regulate communications based on the content of the communication. Drawing from this principle that content-based restrictions on speech are intolerable, telemarketers argued that the DNCR is unconstitutional because it restricts commercial telemarketing but not charitable telemarketing. Judge Nottingham agreed. He wrote that while governments may not be required to regulate on all fronts (fix all problems before they can fix any), the FTC may not base its failure to regulate on some fronts and not others on the content of the speech–commercial versus non-commercial.

In ruling against the FTC on this issue, Judge Nottingham refused to accept any of the FTC’s reasons for distinguishing between commercial versus charitable telemarketing, which included: 1. charities are less likely to engage in abusive telemarketing practices. 2. the FTC is not really restricting any speech; the citizens are doing it by signing the registry. Nottingham disagreed, writing that because the DNCR does not give citizens the opportunity to ban all telemarketing calls–commercial and charitable-the FTC has entangled itself in the decision of which speech is blocked, thereby regulating based on content.

The Tenth Circuit Appeals Court does not seem to agree with Nottingham’s analysis. On October 7, the three judge panel granted the FTC’s request to stay the Colorado District Court’s injunction, stating the “FTC shows substantial likelihood of success on the merits.” The Tenth Circuit judges do not seem to believe that the DNCR is content based. Sticking more closely to the Hudson test, they wrote that to show a reasonable fit between the FTC’s goal of the DNCR, the FTC must only “demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.” Citing Rubin v. Coors Brewing Co. (1995). While the fit must be reasonable and in proportion to the interest served, it need not be a perfect fit or the best fit. Citing Fox, 492 U.S. at 480. “Within the bounds of the general protection provided by the Constitution to commercial speech, we allow room for legislative judgments.” Citing Edge Broad. Co. p. 434. The Courts do not require “that the Government make progress on every front before it can make progress on any front.” Id.

In its preliminary order, the Tenth Circuit found the FTC’s means of regulating commercial, versus charitable, telemarketing seems justified based on both Congressional and FTC findings. Congress expressly made factual findings in the 1991 Telephone Consumer Protection Act TCPA that telemarketing calls “conducted to induce purchases of goods or services” have subjected consumers to substantial fraud, deception, and abuse. Pub. L. 103-297 at ** 2,7. Consequently, in enacting a national do-not-call registry, the FTC “decided to limit coverage of the national registry to telemarketing calls made by or on behalf of sellers of goods or services.” 68 Fed. Reg. 4629

Furthermore, the FTC’s revised Telemarketing Sales Rule states that the agency relied on TCPA and FCC authority when it initially endorsed the distinction between commercial and non-commercial calls. Id. at 4591. The legislative history accompanying the TCPA, citing complaint statistics, found that commercial telemarketing intrudes upon personal privacy more than noncommercial telemarketing. Also, the FTC’s case was aided by its collection of evidence that commercial telemarketers ignored consumers’ requests to be put on the company-specific lists, or even hampered consumers’ efforts to be placed on such lists by hanging up on them. (Consolidated Opening Brief of Appellant, p. 37, citing 68 Fed. Reg. 4628-29; 18 FCC Rcd. 14030, Sec. 19)

The FTC’s case was also aided by the fact that, while it did not require charitable telemarketers to comply with the national DNCR, it still makes them comply with company-specific do-not-call lists. As the FTC found that charitable telemarketers do not try to thwart peoples’ ability to place themselves on do-not-call lists, the FTC and the Tenth Circuit apparently believe that citizens can still protect themselves from charitable telemarketing through company-specific lists.

Neither Judge Nottingham or the Tenth Circuit directly addressed one additional important argument made by the telemarketing industry–that the DNCR is not narrowly enough tailored because it was implemented without (1) consideration of its financial impact to the telemarketing industry, (2) considering less restrictive alternatives like educating consumers about the preexisting company-specific do-not-call lists, and (3) consider technological market-based solution, which incidentally are costly to citizens (MMS brief p. 20). These arguments are an attempt by the telemarketing industry to insert economic ramifications on corporations that result from governmental regulation into the analysis of whether the regulation on speech is sufficiently narrow.

Tenth Circuit Briefs and Legal Documents
Principal briefs

Our simplified introduction to the Do Not Call List dispute