Ninth Circuit Throws a Wrench Into Third-Party Opt-In Campaigns

On June 19, 2009 the Ninth Circuit ruled that the District Court had erred in ruling in Simon & Schuster's favor in a class action suit brought by Laci Satterfield. In Satterfield v. Simon & Schuster the Court of Appeals reversed the lower court's decision which had vindicated the company of violating the Telephone Consumer Protection Act (TCPA) when it sent text messages to promote Stephen King's novel "The Cell". The Ninth Circuit decision raises serious questions as to the reliance on opt-ins for third-party marketing in both sms campaigns and in other marketing channels.

The Facts

Satterfield received a text message from Simon & Schuster for an advertisement to a cellular phone she owned. The text message was received after she became a registered user of Nextones.com at the request of her minor son in order to receive a free ringtone. In form to sign up contained a check box that was following by: "Yes! I would like to receive promotions form Nextones affiliates and brands. Please note, that by declining you may not be eligible for our FREE content."

Subsequently, Satterfield received a text message from Simon & Schuster advertising its publication of a novel by Stephen King. The text stated: "The next call you take may be your...Join the Stephen King VIP Mobile Club at http://www.cellthebook.com/. RplySTOP2OptOptOut. PwdByNexton.

Satterfield filed a class action against Simon & Shuster and Nextones alleging violations of the TCPA, claiming that she did not consent to receive the message.

The trial court had dismissed the action finding that the computer utilized to transmit the sms message was not autodialer because the number was not dialed randomly. The district court also found that the plaintiff had given consent to receive the message.

The Ninth Circuit's Opinion

Satterfield appealed the district court's ruling to the Ninth Circuit. On appeal, the Ninth Circuit reversed the trial courts findings. The court's opinion had three primary holdings.

A Material Fact Existed as Whether Simon & Schuster was using an Automatic Telephone Dialing System (ATDS)

The Ninth Circuit held that the district court erred in holding that there was no genuine and disputed issue of material fact as to whether the system Simon & Schuster used was an autodialer - an ATDS. In reaching its decision, the court focused on what it characterized as conflicting testimony and unclear record on whether the equipment used to send the texts had the capacity "to store or produce telephone numbers to be called, using a random or sequential number generator." The court found that if the dialer had the capacity to dial randomly, that would be sufficient to trigger the TCPA.

The Text Message was a "Call" as defined under the TCPA

Although never ruled on by the district court, Simon & Schuster argued that the act of sending the text message did not constitute a "call" under the TCPA. The Ninth circuit did not agree with Simon & Schuster's argument.

In reaching its decision the Ninth Circuit observed that the Federal Communications Commission interpretation to be reasonable that the TCPA encompasses both "voice calls and text calls to wireless numbers including, for example, short message service (SMS) calls, provided the call is made to a telephone number assigned to such service."

The Plaintiff Did Not Provide Express Consent to Receive the Text

The aspect of the Ninth Circuit decision which has the greatest potential impact to marketers who utilize third-party opt-in lists relates to the "consent" aspect. The TCPA permits a sms message where the recipient gave express consent to receive the message. Below, the district court agreed with Simon & Schuster's position that the plaintiff had consented to receive text messages when she signed up for Nextones, and thus there could be no liability under the TCPA for the message.

The Ninth Circuit disagreed. Although Ms. Satterfield had agreed specifically referred to promotions from Nextones "affiliates" and "brands", the Ninth Circuit found that Simon & Schuster was not an affiliate of Nextones based on a formal analysis of the meaning of the terms. Nextones neither owns nor controls Simon & Schuster. Furthermore, Simon & Schuster was not a brand of Nextones. Therefore, Simon & Schuster could not rely on the consent that Ms. Satterfield provided to receive messages because it was not a brand or an affiliate of Nextones. The court remanded the action to the trial court to continue the litigation.

The court's conclusions with respect to consent should be of significant concern to not just sms marketers, but to any company that relies on third party opt-in lists. The court's findings are particularly troubling given what appears to be clear disclosure by the provider and authorization by the consumer that he/she would be receiving third-party offers, coupled with the fact that the offer was transmitted by Nextones whose name appeared in the message. The Ninth Circuit's reliance on what appears to be a technical distinction (literally dictionary definitions) as to what constitutes an affiliate fails to take into account the expansive nature of the term in the context of the Internet. Nevertheless, based on this ruling, it is even more critical than ever that a marketer who relies upon third-party opt-in lists verify that the consent obtained is consistent with the marketer's relationship with the opt-in provider.

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