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FTC’s Opinion on Soundboards Upheld by Court

Federal court rules that telemarketers may not use soundboard technology to avoid robocalling restrictions.

In Soundboard Association v. FTC (decided on March 24, 2017 in the United States District Court in the District of Columbia), the court upheld a Federal Trade Commission (“FTC”) informal opinion letter of November 2016 which opined that the use of soundboard technology in telemarketing is subject to the same regulations placed on robocalls.

The Telephone Consumer Protection Act prevents telemarketers from playing pre-recorded or artificial voice messages unless the person receiving the call has first provided prior written consent to receive such a call. Although these “robocalls” are not entirely outlawed, the process of acquiring written consent, together with other regulations, renders the use of such marketing techniques extremely expensive and legally risky.

Soundboard technology, the subject of this case, can be distinguished from robocalls in several important ways. Soundboard technology involves a reciprocal conversation between sales agent and consumer. However, instead of speaking to the consumer, the sales agent responds to the consumer by playing pre-recorded audio clips. In the case that there is no available audio clip appropriate to respond to the consumer’s question or statement, the sales agent has the ability to speak directly to the consumer. In September 2009, the staff of the FTC issued an informal opinion that soundboards were not subject to the same strict regulations that robocalls were. However, the FTC reversed this opinion in a November 2016 letter. The FTC staff is now of the belief that soundboards should be treated in the same way as robocalls.

Soundboard Association, representing companies that manufacture and use soundboard technology, sued the FTC, claiming that the November 2016 letter was unlawful. First, it claimed that the November 2016 letter was a “legislative rule” and therefore cannot be imposed without notice to the public and an opportunity for all interested parties to comment. The FTC offered no such opportunity. Second, the plaintiff argued that the letter unconstitutionally restricted speech. The court rejected both claims, upholding the letter as lawful.

Importantly, on the preliminary issue as to whether the November 2016 letter constitutes a final agency action subject to judicial review, the court held that it does. As the November 2016 letter reflects the views of FTC staff members tasked with enforcing the federal regulations, the court held that that the letter therefore reflects the opinions of the FTC itself and it is a final agency action.

As to the plaintiff’s first argument, that the November 2016 letter was a “legislative” rule requiring notice and public comment, the court held that the FTC staff’s letter is a “quintessential interpretive rule.” Since the original opinion letter of September 2009 was unquestionably an interpretative rule, the Court reasoned that the November 2016 was also interpretive, and even though the FTC’s opinion has changed, public notice and comment was not required.

The court also rejected the plaintiff’s second argument, that the November 2016 letter violated the First Amendment by placing content-based restrictions on speech. The federal regulations do not require written consent from consumers in the case whereby a non-profit organization is soliciting donations from people who have donated to their organization in the past. The plaintiff asserted that such a distinction between prior donors and potential new donors should be viewed as a content-based restriction on speech. The court disagreed, holding that this “carve-out” is merely a “time, manner, place” restriction, allowing charities to freely contact members and prior donors, still while protecting other consumers from innumerable recorded phone calls from all other types of organizations.

Takeaway: The FTC’s opinion on soundboards has changed, and a federal court has now ruled the change to be lawful. Companies using soundboard technology as a marketing tool must now comply with federal regulations that affect traditional robocalls. Namely, companies intending to use soundboard technology will need to seek the written consent of consumers prior to placing the call as required by the TCPA.