Free Speech and Interstate Commerce

The efforts by state legislatures to place additional restrictions on the telemarketing industry have been well-documented in the pages of this publication and many others. As of mid-April, 80-plus bills affecting the telemarketing industry had been introduced already this year. Many of these bills are simply copies of legislation introduced or passed in other states, yet some legislators are becoming increasingly bold in their initiatives. Either way, it is arguable that all of them may represent an unconstitutional infringement of a company's right to free speech and interstate commerce.

Subhed: First Amendment

As we all know, the Constitution prohibits the enactment of any law “abridging the freedom of speech.” Interpreting just what that simple sentence means has been the subject of numerous landmark Supreme Court decisions over the years. The Supreme Court has recognized a form of speech, known as “commercial speech,” that receives First Amendment, albeit limited, protection. Commercial speech has been defined as speech that does no more than propose a commercial transaction and essentially covers all telemarketing calls. Since the mid-1970's commercial speech has been protected because of its informational value to the consuming public. The court held in Virginia State Board of Pharmacy vs. Virginia Citizens Consumer Council that “It is clear, for example, that speech does not lose its First Amendment protection because money is spent to project it… Speech likewise is protected even though it is carried in a form that is sold for profit.”

Despite this constitutional guarantee of protection, government may still legitimately restrict commercial speech in several ways:

In order for a state to adequately regulate commercial speech, the regulation proposed must identify a substantial interest of that governing body, directly advance that substantial interest, and be no more restrictive than is necessary to advance that substantial interest.

When contemplating telemarketing regulation, governments nearly always claim that there is a substantial interest in protecting their citizens from fraud and in protecting the privacy of their citizens. Certainly nobody argues with either of these as valid governmental interests. The questions concerning the constitutionality of a statute almost always arise when determining whether the proposed regulation will directly advance that interest or whether it is more restrictive than necessary to advance that interest.

With regard to protecting citizens from fraud, the issue is fairly clear. The Court has held that fraudulent speech does not meet the standard for commercial speech and therefore can be banned by a governing body. Thus the nationwide prohibition on fraudulent telemarketing.

However, when addressing the issue of privacy, it is much less clear where the line will be drawn. With most of the current telemarketing regulation that has been passed and the new legislation that has been proposed, a reasonable argument can be made that these initiatives do nothing to protect individuals' privacy and what little protection they do provide, could be achieved in a far less restrictive manner.

For example, statutes establishing a state-run “Do-Not-Call” list could be considered an unconstitutional infringement on free speech. If the substantial government interest is to protect consumers' privacy by allowing them to reduce unwanted telemarketing calls, it is arguable that there are much less burdensome means to achieve the same goal. Creating a state regulation similar to the Telephone Consumers Protection Act (TCPA), empowering consumers to make their own decisions as to which companies they will receive calls from and which companies they will not, is less burdensome on telemarketers and consumers alike. The current state-run lists require consumers to pay a fee to get their name on the list, while charging telemarketers a higher fee to purchase the list. The TCPA model allows consumers to make their “Do-Not-Call” request for free and requires telemarketing companies to establish a program for receiving and processing such requests. This alternative not only promotes the government's substantial interest in privacy, but it does it in a far less restrictive manner.

The governor of Rhode Island used just this argument when vetoing a proposed “Do-Not-Call” bill in 1996. In his message of veto, the governor stated, “the act is likely unconstitutional under the First Amendment because it unreasonably infringes on the rights of companies to freely communicate their messages by telephone. There are effective and less burdensome alternatives to address the problem of unwanted telephone calls than the method chosen by this act. As such, the First Amendment rights of companies to freely communicate with consumers should trump the procedures mandated by this act.”

In addition, the statutes in 24 states requiring registration and bonding of telemarketers may be unconstitutional as well, since nearly all of these statutes contain an extensive list of industries that are exempt from the registration requirements. It has been held by the Supreme Court in City of Ladue vs. Gilleo, that “exemptions from an otherwise legitimate regulation of a medium of speech…may diminish the government's rationale for restricting the speech in the first place.” In other words, when the government's regulation targets speech in only a narrow band of a broad spectrum of similar market activities, the arbitrariness or underinclusiveness of the scheme chosen by the government may well suggest that the asserted interests either are not pressing or are not the real objects of the restriction of speech. Either way, it may result in these statutes being overturned in the courts.

Subhed: Interstate Commerce

Article I, Section 8, Clause 3 of the Constitution gives Congress exclusive jurisdiction over interstate commerce. However, through other mechanisms this power can be shared with the states. The bottom line is that if Congress desires, it may preempt an entire area of regulation, thus preventing the states from making any laws concerning those areas.

When Congress enacted the TCPA in 1991, it established federal standards regarding telephone solicitations applicable to all telemarketers regardless of where they were located. Congress occupied the entire field of interstate telemarketing law, thus, arguably, preventing states from enacting tougher laws on interstate matters.

The TCPA specifically preempted state laws purporting to regulate interstate telemarketing and established a nationwide system for handling “Do-Not-Call” requests from consumers. Thus while the TCPA does not preempt any state regulation dealing with intrastate regulation of telemarketing, all interstate telemarketing activity is reserved to the federal government for regulation. Therefore, to the extent that any state regulation, especially “Do-Not-Call” lists, is applied to out-of-state telemarketers calling into that state or in-state telemarketers calling outside the state, it is again arguable that such a law is unconstitutional.

Almost none of these issues have been subjected to judicial interpretation. However, it seems clear that a compelling argument can be raised on a number of fronts. As the proliferation of state statutes continues, telemarketers must be vigilant in contacting their state legislators to educate them on the positives of the industry. When the industry is able to tell its story of employment opportunities and economic growth, unfair and onerous legislation is often defeated. Yet for those initiatives that do become law, it does not appear that the telemarketing industry is without a forum left to challenge such regulation.

C. Tyler Prochnow is an attorney in the Kansas City office of Lathrop & Gage, L.C.

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