Court Ruling on No-Call Eve Shocks Industry

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A federal court ruling that declared the national no-call list invalid stunned telemarketers and privacy advocates alike yesterday and sent both scrambling to figure out what happens Oct. 1 when enforcement of the list was supposed to begin.


However, lawmakers are moving quickly to pass legislation that would put the registry back in business and are optimistic that something could be passed as early as today.


Unexpectedly, it is the Federal Trade Commission that will be in the position of appealing a no-call-list ruling that most industry watchers had thought would fall in the agency's favor. The decision by Oklahoma City-based U.S. District Judge Lee R. West in favor of the Direct Marketing Association in its challenge to the no-call list threw doubt on the list just a week prior to its enforcement date.


Sens. Ted Stevens and Fritz Hollings and Reps. W.J. "Billy" Tauzin and John Dingell introduced legislation late yesterday that would give the FTC the authority to implement the list and fix the problems that West said would prevent the list's launch. In addition, the FTC has filed a motion to stay West's ruling while it pursues an appeal.


FTC spokeswoman Cathy MacFarlane said the agency had not changed its plans to launch the registry Oct. 1. The FTC is planning a briefing for Sept. 29 or 30 to discuss enforcement of the list.


Telemarketers are wondering what the ruling means to their business, said industry veteran Kathryn Barber, a former chairwoman of the DMA Teleservices Council and current member of the American Teleservices Association's board of directors. Many telemarketers will see the ruling as a chance to change the regulations and avert the dire future many have predicted for the industry.


"What people hope is that this is a way to get more reasonable regulations in place," Barber said. "The industry wants to step up to the plate and make quality phone calls and find a balance between commerce and consideration."


West found that Congress had failed to give the FTC the authority it needed to create the list and that jurisdiction for creating the no-call list fell with the Federal Communications Commission. But he did not immediately issue an order regarding the disposition of the list's implementation on Oct. 1.


"The basic, and what the court considers to be the dispositive, issue raised by the plaintiffs as to its first challenge to the Final Amended Rule is whether the FTC has the authority to promulgate a national do-not-call registry. The court finds it did not," the court said.


West did not rule on whether the no-call list violated First Amendment free speech rights. He upheld other telemarketing regulations implemented by the FTC, including new predictive-dialer and pre-acquired account information rules.


However, some privacy advocates saw the ruling as only a temporary reprieve for telemarketers. Follow-up action by Congress could give the FTC the authority it needs, said Chris Hoofnagle, associate director of the Electronic Privacy Information Center.


"It's certainly a victory for the telemarketing industry," Hoofnagle said. "It's simply a delay rather than a permanent victory over the implementation of the list."


The ruling does not affect the FCC, which has its own rules implementing a national no-call list and could proceed Oct. 1 despite the ruling, Hoofnagle said. However, FCC documents indicate that the agency might not do so.


In its report and order released July 3 implementing no-call rules to parallel the FTC's, the FCC acknowledged outstanding court challenges to the FTC's no-call list. The FCC said that if the FTC lost, it would have to delay implementation of its no-call rules because Congress approved money to administer the list only for the FTC.


An FCC spokeswoman did not return calls for comment.


"This decision is clearly incorrect," FTC chairman Timothy Muris said in a statement. "We will seek every recourse to give American consumers a choice to stop unwanted telemarketing calls."


Neither side of the privacy fence had expected the outcome of West's ruling. In June, the DMA's own senior vice president of governmental affairs, Jerry Cerasale, predicted that the DMA would lose the case at the lower-court level. Cerasale's prediction was understandable given that on March 26 West's court told the DMA that it had failed to prove its challenge was likely to succeed and thus declined to stop the FTC's implementation of the no-call list while court proceedings were under way.


Normally, courts defer to federal agencies so long as they are not found to be acting "arbitrarily" or "capriciously," Hoofnagle said. But the court was not deferential to the FTC on the no-call list, he said.


Furthermore, the no-call bill Congress passed in February and President Bush signed in March grants funding to the FTC for the list and acknowledges that the list will be created, Hoofnagle said. That would seem to suggest that Congress granted the FTC authority to create the list.


The ruling raises the question of why the FTC took the lead role on implementing the national no-call list in the first place. The 1991 Telephone Consumer Protection Act clearly gives the FCC the authority to create a no-call list, and Hoofnagle said that the issue of whether the FCC should have been the lead agency on the list bears examining.


The FCC considered creating a no-call list in 1992 during the implementation of the TCPA but declined. While the FCC hasn't touched the issue since then, the FTC under Muris has been active in privacy issues and a strong supporter of telemarketing curbs, Hoofnagle said.


"Muris is cleaning up the mess that the FCC never addressed," Hoofnagle said.


The DMA reacted in a statement saying that it was grateful for the ruling but respected the indications given by the millions of consumers who registered for the list. The DMA, which has held that authority for the no-call list falls appropriately with the FCC because the agency had broader jurisdiction to regulate businesses than the FTC, said it supported a national no-call list.


"The DMA will be working with its attorneys, the FTC and the Federal Communications Commission over the coming days to evaluate the practical implications of [the] decision and what it may mean for both consumers and marketers," the DMA said.


The ATA, which is pursuing its own challenges to the FTC and FCC no-call rules in U.S. District Court in Denver, said it was excited by West's ruling and would use the decision to support its own case. However, Tim Searcy, ATA executive director, acknowledged that the victory could be overturned by action from Congress and said that only when the court finds that the no-call list is unconstitutional will telemarketers have won the final battle.


"Even Congress cannot avoid the constitutional issues that the FTC and FCC actions have raised," he said.


A decision in that case is expected by Oct. 1.


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