As of the time of this writing in late July 2021, even though the United States and numerous other governments around the world have been taking steps since the spring of 2021 to open up their economies and societies, most individuals and businesses are still conducting many of their activities in a “virtual” world that relies on communications networks and services. As we noted in our prior report, communications and broadband networks in the United States, which largely have been subject to a light regulatory touch from state and federal regulators over the past four to five years (if not longer), have performed remarkably well in responding to and accommodating the increased demand for communications and broadband services. But with the change in U.S. presidential administrations and in the makeup of the U.S. Congress that occurred in January 2021, there has been an uptick in federal government activity in the communications industry sector, in terms both of greater regulation and of more robust attempts to influence investment decisions in the sector, to promote such government policies as increasing the availability and affordability of broadband services, especially in areas of the country deemed underserved by such services.
For example, on the subject of increased government subsidies, the stimulus packages passed by Congress to address the economic fallout of government and private party responses to the COVID-19 pandemic include new federal programs to subsidize broadband network equipment deployment in underserved areas and to subsidize the purchase of broadband services and devices by lower-income consumers. The Federal Communications Commission (FCC) began implementing these programs in early 2021. More such programs may be on the way, as Congress currently (as of late July 2021) is considering passage of a new infrastructure deployment bill to authorize federal government spending of more than $1 trillion for all types of infrastructure, including potentially $100 billion or more for broadband infrastructure.
On the subject of increased regulation, shortly after the Biden administration took office, the Department of Justice (DOJ) withdrew its 2018 federal court lawsuit challenging California’s “net neutrality” law regulating numerous aspects of broadband services offered by service providers in that state. On July 9, 2021, President Biden issued an Executive Order, titled “Executive Order on Promoting Competition in the American Economy,” which lays out a blueprint for increased federal government regulatory activity in virtually all sectors of the U.S. economy. Specifically with regard to the communications sector, the Executive Order encourages the FCC’s Chairperson to work with the other FCC Commissioners to, among other things, re-institute the “Net Neutrality” rules that the FCC first promulgated in 2015 (and subsequently rescinded in 2017) and further promulgate new rules imposing additional requirements on broadband service providers, including rules that would require broadband service providers to report broadband prices and subscription rates to the FCC, require broadband service providers to publish a “broadband consumer label,” and prohibit unjust or unreasonable early termination fees in end-user communications contracts. The Executive Order further asserts: “In the telecommunications sector, Americans likewise pay too much for broadband, cable television, and other telecommunications services, in part because of a lack of adequate competition.” This assertion is a notable shift away from prior FCC and federal government acknowledgments of the vigorously competitive nature of most telecommunications markets in the United States, especially the wireless and broadband services markets.
Several states, too, became more active in regulating the telecommunications sector. For example, in April 2021, the state of New York enacted a law that sought to regulate the price and product features of broadband services offered by service providers to qualifying low-income consumers in the state, requiring all broadband service providers to offer such consumers two types of broadband service plans with certain minimum download speeds priced at or below specified price ceilings. The New York State Telecommunications Association, Inc. and several other trade groups and industry providers sued in federal court to block the New York law from going into effect on the grounds the law was preempted by federal law. The federal district court granted the plaintiffs’ motion for preliminary injunction in June 2021, concluding that the plaintiffs were likely to succeed on the merits of their preemption claims. This ruling, in turn, led the state of New York to enter into a stipulated final judgment with the plaintiffs, in plaintiffs’ favor, holding that the New York law was preempted by federal law. See N.Y. State Telecommunications Ass’n v. James, Docket No.: 21 CV 2389 (E.D.N.Y). The New York State Attorney General announced plans to appeal the federal district court’s decision.
For its part, the FCC has not yet undertaken the increased regulatory activities that President Biden’s July 9 Executive Order recommends that the FCC consider undertaking. This inaction is likely due to the vacant FCC Commissioner seat that has existed since President Biden took office, as the remaining four FCC Commissioners are split two and two between the Democrat and Republican political parties. Once Congress approves a third Democrat nominee to fill the vacant FCC Commissioner seat, it appears likely that the FCC will more actively pursue at least some parts of the Biden administration’s pro-regulation agenda for the communications sector. The current acting FCC Chairperson, for example, went on record in February 2021 to voice her approval of the DOJ’s withdrawal of its California lawsuit challenging California’s net neutrality law and to reiterate her support for reinstituting the FCC’s Obama administration-era “Net Neutrality” rules.
But the lack of a full complement of FCC Commissioners since late January 2021 does not mean that the FCC has been stagnant. Far from it. The FCC was active on numerous fronts during the time period covered by this report, both before and after the change in presidential administrations. Among other activities, the FCC conducted multiple wireless spectrum auctions (Auctions 105–107) and prepared and issued procedures for several additional wireless spectrum auctions (Auctions 108–111); conducted auctions for telecommunication carriers seeking financial support for their deployment of network equipment from federal programs such as the FCC’s Connect America Fund and the FCC’s Rural Digital Opportunity Fund; undertook rulemakings and/or issued rules addressing subjects such as state diversion of 911 emergency network funds and “rip and replace” programs to remove from the country’s telecommunications network infrastructure equipment deemed a threat to national security; issued several orders to combat arbitrage by certain local telecommunications carriers of the regulatory structures for providing access services to long distance service providers, also known as “traffic pumping”; issued several orders designed to reduce, if not eliminate, unwanted robocalls; clarified and expanded its regulatory procedures and fee structure for foreign-based satellite service providers; and implemented federal economic stimulus-related programs such as the Emergency Broadband Benefit Program and the COVID-19 Telehealth Program.
In past years, we would have provided a compendium-type summary of many of these FCC developments. But given the explosion of online resources for tracking these developments, this year, as part of what may become a more permanent revision to our report format, we instead have focused our in-depth discussion on four federal court decisions—three by the U.S. Supreme Court and one by the Ninth Circuit Court of Appeals—that promise to impact the communications sector for some significant time into the future. That discussion follows below.
B. Judicial Developments
1. City of Portland v. United States, 969 F.3d 1020 (9th Cir. 2020)
In City of Portland v. United States, 969 F.3d 1020 (9th Cir. 2020), the U.S. Court of Appeals for the Ninth Circuit reviewed three orders issued by the FCC in 2018. The first two orders, the Small Cell Order and Moratoria Order, set limits on local governments’ authority to regulate telecommunications providers’ provision of the newest generation of wireless broadband technology, known as “5G,” that requires the installation of thousands of “small cell” wireless facilities. The FCC’s statutory authority for limiting such local regulation is contained in Sections 253(a) and 332(c)(7) of the Federal Telecommunications Act of 1996 (the “Act”) and reflects congressional intent to expand deployment of wireless services. Those provisions authorize the FCC to preempt any state and local requirements that “prohibit or have the effect of prohibiting” any entity from providing telecommunications services.
The FCC’s Small Cell Order was challenged as exceeding the FCC’s authority in the areas of fees, aesthetic requirements, and shot clocks.
Fees: In the Small Cell Order, the FCC found that application fees that are less than $500 and recurring fees that are less than $270 per year are presumptively lawful. Fees that exceed those levels are pre-empted unless the locality can demonstrate that actual costs exceed the presumptively lawful levels.
The Ninth Circuit upheld these requirements. The Ninth Circuit rejected the argument that “there is no rational connection between whether a particular fee is higher than that particular city’s costs, and whether the fee is prohibiting service.” The Ninth Circuit explained that the “FCC did not base its fee structure on a determination that there was a relationship between particular cities’ fees and prohibition of service.” Instead, the FCC “found that above-cost fees, in the aggregate, were having a prohibitive effect on a national basis,” and a “cost-based standard would prevent excessive fees and the effective prohibition of 5G services in many areas across the country.” The Ninth Circuit also rejected attacks on the FCC’s factual finding that high fees were inhibiting deployment within and outside the jurisdiction charging the fees, citing the first-hand reports of service providers and an academic study relied on by the FCC. The Ninth Circuit further concluded that the fee limitation did not violate a local government’s right under section 253(c) of the Act to receive fair and reasonable compensation for the use of rights of way, explaining that “the calculation of actual, direct costs is a well-accepted method of determining reasonable compensation” under section 253(c) and that “fair and reasonable” does not mean that the state or local government “should be permitted to make a profit by charging fees above costs.” The Ninth Circuit also found that the FCC was not “setting rates” when it adopted presumptively permissible fee levels. Rather, “it was determining a level at which fees would be so clearly reasonable that justification was not necessary.”
Aesthetic Requirements: In the Small Cell Order, the FCC concluded that any deployment restrictions based on “aesthetic or similar factors” violate Sections 253 and 332 of the Act and are preempted unless they are (1) reasonable, (2) no more burdensome than those applied to other types of infrastructure deployments, and (3) objective and published in advance. “To qualify as a ‘reasonable’ aesthetic requirement, an ordinance must be both ‘technically feasible and reasonably directed to avoiding or remedying the intangible public harm of unsightly or out-of-character deployments.’” The Ninth Circuit upheld the FCC’s “reasonable” requirement, finding that it is “consistent with our case law, as well as congressional intent in enacting Sections 253 and 332, and is not unduly vague or overbroad.” The Ninth Circuit also left in place “[t]he condition of advance publication,” which “is not seriously challenged.” The Small Cell Order’s requirement that aesthetic regulations be “objective,” however, was overturned by the Ninth Circuit as arbitrary and capricious in that the requirement “is neither adequately defined nor its purpose adequately explained.” Finally, while the Small Cell Order required that small cell aesthetic regulations be “no more burdensome than requirements placed on other facilities,” the Ninth Circuit overturned that requirement on the ground it “is not consistent with the more lenient statutory standard that regulations not ‘unreasonably discriminate.’”
Shot Clock: In the Small Cell Order, the FCC made two changes to its shot clock provisions: it expanded application of the shot clock requirements from zoning applications to include all permitting decisions, and it shortened the shot clock time frames to 60 days to decide applications for installation on existing infrastructure and 90 days for all other applications, from the previous 90 and 150 day time frames. The FCC did not adopt a “deemed granted” remedy, but instead retained the requirement that an applicant must seek injunctive relief if a government locality misses a shot clock deadline. The Ninth Circuit upheld the FCC’s new shot clock requirements. The Ninth Circuit rejected contentions that state and local governments would be unable to make permit decisions in the prescribed time limits, noting that the FCC’s requirements “create only presumptions” and “if permit applicants seek an injunction to force a faster decision, local officials can show that additional time is necessary under the circumstances.” The Ninth Circuit also found that the expansion of shot clocks to all permitting decisions is supported by Section 332(c)(7)(B)(ii) of the Act, which requires a decision to be made within a “reasonable period of time,” and applies to both applications “to place” wireless facilities as well as requests to “construct, or modify” such facilities. Although wireless service providers argued that the FCC should have adopted a deemed granted requirement, the Ninth Circuit rejected that argument, stating that the factual findings “do not compel the adoption of a deemed granted remedy.”
The Moratoria Order was challenged as arbitrary, capricious, and contrary to Section 253 of the Act. In that order, “the FCC found that municipal actions that halt 5G deployment, deemed ‘moratoria,’ violate Section 253(a) of the Act when they effectively prohibit the deployment of 5G technology.” The order recognizes two general categories of moratoria: express and de facto. The first, express moratoria, is defined as statutes, regulations, or other written legal requirements in which a state or local government expressly prevents or suspends the acceptance, processing, or approval of applications or permits necessary for the deployment of telecommunications services. The FCC found that “such bars to 5G deployment qualify as moratoria even though they are of a limited duration.” The second, de facto moratoria, is defined as state or local actions that are not express moratoria, but that “effectively halt or suspend the acceptance, processing, or approval of applications or permits for telecommunications services or facilities in a manner akin to an express moratorium.” De facto moratoria violate section 253 only when they unreasonably or indefinitely delay deployment. The Moratoria Order nevertheless permits “emergency” bans on the construction of 5G facilities to protect public safety and welfare, but only where those laws are (1) competitively neutral, (2) necessary to address the emergency, disaster, or related public needs, and (3) target only those geographic areas affected by the disaster or emergency.
The Ninth Circuit upheld the Moratoria Order in its entirety. The Ninth Circuit rejected claims that the definitions of moratoria were overly broad and unreasonable and purportedly would preempt all restrictions on construction, even seasonable ones that cause some delay. The Ninth Circuit explained that that “municipal ordinances of general applicability will qualify as de facto moratoria only where the delay caused by the ordinances ‘continues for an unreasonably long or indefinite amount of time such that providers are discouraged from filing applications.’” In the Ninth Circuit’s words, “The Order does not preempt necessary and customary restrictions on constructions.” The Ninth Circuit also rejected claims that the Moratoria Order was contrary to Section 253, stating that Section 253 “preempts all ‘local statute[s] or regulation[s], or other . . . legal requirement[s]’ that prohibit or have the effect or prohibiting telecommunications services.”
The third FCC order under review in City of Portland was Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, 33 FCC Rcd. 7705, 7705–91 (the “One-Touch Make-Ready Order”). The One-Touch Make-Ready Order sought to make it faster and cheaper for broadband providers to attach to already existing utility poles by allowing new attachers themselves—instead of the pole owner—to do all the pre-attachment pole preparations. The Ninth Circuit upheld the FCC’s overlashing rule, which prohibits a utility from requiring overlashers to conduct pre-overlashing engineering studies or to pay the utility’s cost of conducting such studies. The Ninth Circuit also upheld the FCC’s preexisting violation rule, which prohibits utilities from denying access to a new attacher solely because of a pre-existing safety violation that the attacher did not cause. The Ninth Circuit also upheld the FCC’s self-help rule (which allows utility-approved contractors to prepare the entire pole, not just the lower portion of a pole, for attachment) and the FCC’s rate-reform rule (which establishes a presumption that all telecommunication carriers are similarly situated and thus entitled to the same rates).
On June 28, 2021, the U.S. Supreme Court denied the appellants’ petition for certiorari.
2. FCC v. Prometheus Radio Project
On April 1, 2021, after nearly two decades since the FCC first tried to deregulate broadcast media ownership, the U.S. Supreme Court upheld the FCC’s latest attempts to eliminate or modify several long-standing, cross-media ownership and local ownership rules that set limits on the number of radio stations, television stations, and newspapers that a single entity may own in a given market. With its unanimous decision in FCC v. Prometheus Radio Project, 141 S. Ct. 1150 (2021), the Supreme Court brought to a close a long-running dispute in which the same panel of three judges on the U.S. Court of Appeals for the Third Circuit had stymied the FCC’s repeated attempts to update its media ownership rules to reflect the dramatic changes that have occurred in the media marketplace. In its most recent ruling, the Third Circuit criticized the FCC’s failure to conduct detailed empirical assessments on how the ownership rule changes might impact minorities and women.
Statutory Background
Section 202(h) of the Act requires the FCC to quadrennially review its broadcast media ownership rules, as well as to repeal or modify those rules that it determines are no longer “necessary in the public interest as the result of competition.” Pursuant to this statutory mandate, over the course of more than fifteen years, the FCC repeatedly sought to deregulate media ownership in an effort to help broadcasters seeking to consolidate to better compete with cable, internet content providers, and other new competitors.
Third Circuit Decision
Before the Supreme Court was a Third Circuit ruling that vacated several of the FCC’s most recent actions. The first vacated FCC action was a final action the FCC took in connection with its 2010 and 2014 reviews of cross-media and local ownership rules (2016 Order). This order defined “eligible entities”—which are given certain preferences under ownership rules—based on revenue, rather than using criteria relating to race or gender. The second vacated FCC action was the FCC’s grant of certain industry groups’ petition for rehearing of the 2016 Order (2017 Order). This order made major changes to media ownership restrictions that had existed in substantially the same form since the 1960s and 1970s. Not only did the FCC eliminate rules limiting newspaper/broadcast and television/radio cross-ownership, but it also modified a local television ownership rule to rescind a requirement that at least eight independently owned stations remain in a local market and to create a discretionary waiver of the prohibition against mergers between two of the top four stations in a local market. The third vacated FCC action was the FCC’s adoption of a radio incubator program to promote diversity (2018 Order).
In response to a petition for review under the Administrative Procedure Act (APA) by Prometheus Radio Project and other public interest and consumer advocacy groups, the Third Circuit vacated the FCC’s “eligible entity” definition in the 2016 Order, in addition to vacating the 2017 Order and 2018 Order in their entirety. In particular, the court criticized the FCC’s failure to provide a “meaningful evaluation” of the impact of its proposed rule changes on diversity in the industry. It directed the FCC to “ascertain on record evidence” the likely effect of its rules, “whether through new empirical research or an in-depth theoretical analysis.”
Supreme Court Decision
In an April 1, 2021 opinion authored by Justice Kavanaugh, the Supreme Court unanimously reversed the Third Circuit’s decision and upheld and reinstated the FCC’s proposals to relax its media ownership rules.
The Court began by concluding that the 2017 Order was “reasonable and reasonably explained,” which is all that the APA’s “deferential” arbitrary-and-capricious standard requires. The Court found that the 2017 Order was supported by “significant record evidence of dramatic changes in the media market” that rendered the current media ownership rules “no longer necessary” in light of the FCC’s “public interest goals of promoting competition, localism, and viewpoint diversity.”
The Court also concluded that the FCC reasonably evaluated the potential impact of its proposed rule changes on the diversity of media ownership when it determined that those changes were unlikely to cause harm. The Court pointed to the FCC’s repeated solicitations for public comment on this issue, the absence of any data submissions that suggested that the existing rules were necessary to protect or promote minority and female ownership, and the fact that some commenters even suggested that they had the “opposite” effect. The Court rejected arguments that the FCC arbitrarily and capriciously relied on “flawed” data and ignored supposedly “superior” studies. Rather, it was sufficient that the FCC “acknowledged the gaps” in data and sought, but did not receive, additional data, as well as “simply interpreted” the available studies differently than certain commenters did.
In short, the Court held that the FCC needed only to rely on available record evidence. Observing that a lack of “perfect” data “is not unusual in day-to-day agency decisionmaking,” the Court declared that the FCC had no obligation “to conduct or commission [its] own empirical or statistical studies” before issuing its rules.
Finally, finding that the Third Circuit vacated the 2016 Order’s “eligible entity” definition and the 2018 Order “based solely” on its reasoning for vacating the 2017 Order, the Court similarly reversed the Third Circuit’s judgment on these two other agency actions and reinstated the FCC’s vacated rule changes from those actions.
Key Takeaways
The most immediate, practical result of the Supreme Court’s decision is that the FCC’s loosening of its cross-media and local ownership restrictions set forth in the 2017 Order may now take effect. These new rules pave the way for greater consolidation in the broadcast and newspaper industry, allowing more traditional media to better compete with the rise of new media sources.
Moreover, the Court’s ruling enhances the FCC’s ability to further deregulate its media ownership rules to enable even more consolidation, through its section 202(h) quadrennial reviews of those rules. By freeing the FCC of any obligation to conduct empirical studies on the likely impact of its proposals on ownership diversity before the FCC acts, the Court underscores the importance of the public comment process. Individuals seeking to influence an administrative rulemaking will have the burden of providing any data requested by the FCC. In the absence of such data, the FCC will have the latitude to rely on its own “predictive judgment.”
The Supreme Court’s decision did not reach the alternate argument raised by broadcaster petitioners that (1) section 202(h) does not require the FCC to consider minority and female ownership impacts when contemplating broadcast media ownership rule changes and (2) the FCC may not consider such topics unless they are part of the FCC’s original basis for an ownership rule. Justice Thomas’s concurring opinion, however, addressed that issue, stating that the Third Circuit “improperly imposed nonstatutory procedural requirements on the FCC by forcing it to consider ownership diversity in the first place.” Justice Thomas concluded: “The Third Circuit had no authority to require the FCC to consider minority and female ownership. So in future reviews, the FCC is under no obligation to do so.” As a result, future litigation appears likely regarding the extent to which the statutory public interest objective of reducing unnecessary regulation “as a result of competition,” and whether the FCC’s stated public interest goals of promoting competition, localism, and viewpoint diversity, impose an obligation on the FCC to promote ownership diversity.
3. Barr v. American Ass’n of Political Consultants
Congress enacted the Telephone Consumer Protection Act (TCPA) in 1992 to attempt to limit the increasing volume of unwanted automated calls sent to consumers, especially bothersome prerecorded telemarketing calls.1 However, since its inception, the TCPA attempted to strike a balance between consumers’ privacy rights and callers’ First Amendment rights to engage in speech. The Supreme Court wrestled with these issues in Barr v. American Ass’n of Political Consultants, 140 S. Ct. 2335 (2020). In its July 6, 2020 decision, the Court upheld the general statutory scheme with the exception of one exemption that the Court found to engage in viewpoint discrimination. Yet the fractured nature of the Court’s decision shows the ongoing difficulties the Court faces in balancing regulation with a robust and expansive free speech doctrine.
e. Background on the TCPA
The TCPA contains an array of provisions designed to reduce unwanted calls. For example, the TCPA gives the FCC the authority to establish do-not-call lists2 and prohibits prerecorded telemarketing calls from being sent to a residential telephone number without the call recipient’s consent.3 The TCPA also restricts the use of automated equipment to call cellular telephone numbers. Thus, it is
unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States . . . to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call.4
Notably, while many other provisions of the 1992 TCPA applied only to marketing or telemarketing calls, this provision applies to all types of calls, including customer service calls, collection calls, survey calls, and calls by political campaigns to conduct polls or get out the vote. Moreover, the statute effectively imposes strict liability for calls that violate it (even if the calls were made in good faith) and imposes a minimum of $500 in statutory damages for each violation, with the potential for trebling the damages in the event of a “knowing or willful” violation.5
In 2015, Congress amended the TCPA and exempted calls “made solely to collect a debt owed to or guaranteed by the United States” from the scope of § 227(b)(1)(A)(iii).6 That amendment, however, privileges a particular form of commercial speech (i.e., debt collection work on a government account) by exempting it from the prohibitions on automated calls that apply to nearly all other callers. This, in turn, raised the issue of impermissible content-based discrimination—and gave an opening to certain organizations, especially those organizations whose ability to contact consumers had been greatly hampered by the TCPA, to potentially invalidate the law.
Litigation ensued, and two circuit courts found that the new exemption for government debt collection calls constituted impermissible content-based discrimination.7 Both circuit courts further agreed on the proper remedy to address the alleged free speech violation: rather than throw the baby out with the bathwater and invalidate the entire ban on automated calls to cell phones, the two lower courts simply struck the offending language exempting government debt collection calls, severing the exemption from the rest of the statute.8 Thus, those courts fashioned a remedy under which all calls to cell phones were restricted, including the government debt collection work that Congress had attempted to exempt.
The Supreme Court granted certiorari and reviewed those circuit court decisions.
f. The Controlling Opinion
The Supreme Court’s decision was fractured, with no opinion receiving five votes in its entirety. Six justices ultimately found the government debt collection exemption unconstitutional, and a separate group of seven justices determined that, assuming the provision was unconstitutional, it should be severed.
Justice Kavanaugh wrote the controlling opinion, joined only by Chief Justice Roberts and Justice Alito.9 Justice Kavanaugh began by reaffirming what he saw as a fundamental distinction in First Amendment law—that while content-neutral “time, place, manner” restrictions are subject to a lower level of scrutiny, content-based restrictions on speech remain subject to strict scrutiny even in the context of commercial regulation.10 Since the government debt collection exemption allowed robocalls to request payment on a government debt but forbade robocalls on other topics (such as making a political endorsement or collecting other debts), the exemption was “about as content-based as it gets.”11
The exemption, then, was subject to strict scrutiny. The government conceded that it could not meet this exacting standard or show a compelling reason why collecting government debt and protecting the public fisc should take priority over other important categories of speech, including core political speech.12
Justice Kavanaugh’s opinion then addressed the question of an appropriate remedy. He found that Congress had “competing interests” in both collecting government debt and in protecting consumer privacy that led it to enact both the TCPA and the subsequent exemption for collecting government debt.13 The controlling opinion thus elected to sever the government debt collection exemption rather than invalidate the ban on automated calls to cell phones as a whole.14 In doing so, it relied on the fact that § 227(b)(1)(A)(iii) is contained within title 47, which encompasses the larger Communications Act, which, in turn, includes a general severability clause applicable to that entire title.15 Moreover, the Court found that, even if the express severability clause of the Communications Act did not apply, the Court should apply a presumption of severability to uphold the broader law, which, after all, had functioned independently for years prior to the 2015 amendment that created the exemption and content-based discrimination at issue.16
g. Additional Opinions
Writing separately, Justice Sotomayor concurred in the judgment. While Justice Sotomayor would have applied intermediate scrutiny to the exemption instead of strict scrutiny, she concluded that the exemption failed to meet this less exacting standard as well, because the government had failed to justify the differential treatment between government debt collection calls and other forms of protected speech.17
In contrast, Justice Breyer, writing for himself, Justice Kagan, and Justice Ginsburg, dissented from the invalidation of the debt collection exemption. Justice Breyer criticized the use of strict scrutiny to analyze content-based distinctions made in commercial speech regulation, and instead would have applied only an intermediate level of scrutiny.18 In particular, Justice Breyer argued that, because the regulation at issue had “next to nothing to do with the free marketplace of ideas or the transmission of the people’s thoughts and will to the government” but was instead a purely commercial regulation, strict scrutiny was not appropriate.19 Justice Breyer’s opinion found that the statute satisfied the intermediate scrutiny standard in light of the government’s interest in protecting the public fisc and the modest restriction on speech at issue.20 Nevertheless, these three justices concurred in the Court’s severability analysis.21
Justice Gorsuch, writing for himself and, as to the severability analysis, for Justice Thomas, agreed with the majority’s use of strict scrutiny to invalidate the exemption.22 However, Justice Gorsuch would have gone further and enjoined the enforcement of the TCPA’s autodialer ban in its entirety as to individuals who engaged in other types of speech, rather than simply sever the exemption.23 Justice Gorsuch’s partial dissent argued that an injunction preventing enforcement of the TCPA against the plaintiffs is the traditional remedy when a regulatory statute runs afoul of the First Amendment.24 Yet the remedy promulgated by the Court’s controlling opinion gave no relief at all for the named plaintiffs, who still found their speech restricted.25
This decision likely is not the end of the matter. Subsequent to the Court’s issuance of its decision, some federal district courts have concluded that, for claims that relate to the period in which the government debt exception was in effect and not yet severed by the Supreme Court, defendants can still mount a First Amendment challenge. Those claims continue to percolate through the federal courts.26
1. Facebook Inc. v. Duguid
In Facebook Inc. v. Duguid, No. 19-511 (slip op. April 1, 2021), the Supreme Court addressed another important aspect of the TCPA. As explained above, when it enacted the TCPA in 1992, Congress sought to stop unwanted calls placed by dialing machines to the nascent technology of cell phones by making it
unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States . . . to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call.27
The statute effectively imposes strict liability for calls that violate this provision (even if the calls were made in good faith) and imposes a minimum of $500 in statutory damages per violation (i.e., per call), with the potential for trebling the damages in the event of a “knowing or willful” violation.28
Over time, the increased use of cell phones, along with the high statutory damages per call, led to an explosion of lawsuits under the TCPA, and in particular under the above quoted provision, 47 U.S.C. § 227(b)(1)(A)(iii), including class action suits that, due to the high level of statutory damages, threaten tens of millions of dollars and more in potential liability.
h. ATDS: Statutory Definition
The TCPA does not apply to all calls made to cellular telephone numbers. Instead, it only forbids calls made without the recipient’s consent that use a prerecorded voice or an “automatic telephone dialing system” (ATDS).29 The law’s prohibition on prerecorded calls is straightforward enough, but it has been less clear what constitutes an ATDS under the statute, thus generating significant uncertainty regarding how companies can ensure they comply with the law—short of making every call by hand.
The statutory definition of ATDS limits the term to “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator and (B) to dial such numbers.”30 But the definition as set forth in the text is far from a model of clarity and is particularly unclear regarding whether the phrase “using a random or sequential number generator” applies to both of the verbs in part (A) of the definition (i.e., “to store” and “to produce”) or only applies to the second verb, making equipment that stores numbers and then dials them (like most modern devices, even potentially including “smart” mobile phones, that are used to dial a list of customers) an ATDS even if the system involves no random or sequential number generation.
i. The Removal of FCC Guidance Leads to a Circuit Split
For a number of years, most court decisions regarding what constitutes an ATDS were heavily influenced by FCC interpretations. In a series of orders, the FCC expanded the scope of what constituted an ATDS to generally cover any automated equipment that dialed numbers without “human intervention.”31 This extension included such equipment as predictive dialers, which dial from lists of numbers in an automated fashion without using random or sequential number generation.32
However, a sea change occurred in 2018. In ACA International v. FCC, the U.S. Court of Appeals for the D.C. Circuit “set aside . . . the [FCC’s] effort to clarify the types of calling equipment that fall within the TCPA’s restrictions.”33 In doing so, the D.C. Circuit found “[t]he impermissibility of the Commission’s interpretation of the term ‘capacity’ in the autodialer definition is compounded by inadequacies in the agency’s explanation of the requisites features [of an autodialer],” thus rendering the FCC orders unreasonable, arbitrary, and capricious.34
After ACA International, courts were left to interpret the definition of ATDS on a clean slate. The circuits quickly split, with three circuits applying a narrow definition that required plaintiffs to show that the equipment used to call them had the capacity to use a random or sequential number generator to set forth a TCPA claim.35 Three other circuits, however, adopted a broader interpretation that found equipment could be an ATDS if it had the capacity either to store numbers from a list and then call the numbers or to generate numbers randomly or sequentially.36
The Supreme Court granted certiorari in Facebook Inc. v. Duguid to resolve this split.37
j. The Decision in Facebook
In its April 1, 2021 decision in Facebook, the Supreme Court unanimously adopted the narrower definition of ATDS. In doing so, the Court began its analysis with the text and found that “[u]nder conventional rules of grammar, ‘when there is a straightforward, parallel construction that involves all nouns or verbs in a series,’ a modifier at the end of the list ‘normally applies to the entire series.’”38 It then applied this “series-qualifier” canon39 to conclude that in the statutory definition of ATDS, the phrase “using a random or sequential number generator” applies to both verbs—to store and to produce.40 The Court further noted that this construction of the statute also followed “the commands of its punctuation.”41 The phrase “using a random or sequential number generator” in the definition is separated from the rest of the sentence by a comma, which the Court found “further indicated that Congress intended” the phrase to apply to both preceding verbs.42
The Court also concluded that the broader construction of the statute that Duguid urged it to follow would lead to dramatic overbreadth in the statute. In particular, the Court noted that ordinary smartphones have the capacity to store numbers in a list and dial them automatically, through the use of tools like speed dialing or automated responses to text messages, which would thus subject them to TCPA liability under Duguid’s proposed interpretation.43 Instead of intending to reach a wide array of equipment, the Court concluded that the definition was in fact meant to “target a unique type of telemarketing equipment that risks dialing emergency lines randomly or tying up all the sequentially numbered lines at a single entity.”44 And the Court declined to solve this problem by reading a “human intervention” test (such as the one contained in the old FCC orders) into the statute, on the grounds that such a test would impose a “difficult line-drawing exercise” on courts that is not based in the statutory language.45
The Court also considered and rejected each of Duguid’s counterarguments. It first found that the Court’s interpretation did not read the term store out of the statute because the types of equipment in use at the time Congress passed the TCPA included machines that would generate numbers randomly or sequentially and then store them for dialing later.46 The Court further found that its definition aligned with Congress’s legislative intent because Congress enacted this provision of the TCPA to resolve unique problems posed by equipment using random or sequential number generation.47 Finally, the Court rejected Duguid’s argument that the decision would unleash a torrent of robocalls, pointing to the other provisions of the TCPA that limited prerecorded voice calls and finding that revising the definition to address new technologies was a question that should be presented to Congress, not the courts.48
k. TCPA Litigation: What’s Next?
While the Facebook decision creates a potent tool to avoid TCPA litigation for companies that use automated equipment to text or call preexisting lists of their customers, it should not be viewed as a free pass. First, the TCPA continues to include other strong prohibitions on automated calling, including a ban on making prerecorded calls to cell phones without consent and a ban on calling numbers on the “do not call” list.49 Litigation will no doubt continue under these provisions should companies not adopt rigid compliance policies. Moreover, the FCC remains active via enforcement actions under these provisions, including recently imposing a record $225 million fine for spoofed robocalls.50
Second, the Supreme Court suggested in a footnote that, even under the narrower definition, equipment that used a random or sequential number generator to select and store which numbers to dial from a list may still be subject to TCPA liability.51 Surveys or marketing messages that rely on a random sample and call cellular phones may thus still generate TCPA exposure, and companies should carefully consider the capabilities of their equipment before engaging in any calling. Moreover, plaintiffs are likely to latch onto this qualification to try to avoid motions to dismiss that rely on the Facebook decision, thus raising the costs of defense for claims that would otherwise be barred by Facebook. Indeed, such tactics have already proven successful in some instances.52
Finally, as the Court noted, Congress may revisit the scope of the autodialing prohibition as applied to new calling technologies.53 Given consumer distaste for many types of robocalls, companies may want to consider the risk of new legislation limiting their ability to call or text lists of contact numbers before engaging in an expanded use of automated dialing.
Endnotes
1. 47 U.S.C. § 227 et seq.
2. Id. § 277(c)(1)–(3); 47 C.F.R. 64.1200(d).
3. 47 U.S.C. § 227(b)(1)(B).
4. Id. § 227(b)(1)(A)(iii).
5. Id. § 227(b)(3).
6. Barr v. Am. Ass’n of Pol. Consultants, Inc., 140 S. Ct. 2335, 2343 (2020).
7. Am. Ass’n of Pol. Consultants, Inc. v. FCC, 923 F.3d 159 (4th Cir. 2019); Duguid v. Facebook Inc., 926 F.3d 1146 (9th Cir. 2019).
8. Am. Ass’n of Pol. Consultants, 923 F.3d at 171; Duguid, 926 F.3d at 1156–57.
9. Justice Thomas joined the portion of the opinion finding the exemption invalid but, as discussed infra, argued that the entire ban on autodialed calls to cell phones should have been struck down.
10. Barr, 140 S. Ct. at 2346.
11. Id.
12. Id.
13. Id. at 2348–49.
14. Id. at 2349.
15. Id. at 2352.
16. Id. at 2353.
17. Id. at 2356–57 (Sotomayor, J., concurring).
18. Id. at 2358–59 (Breyer, J., dissenting in part and concurring in part).
19. Id. at 2359.
20. Id. at 2362–63.
21. Id. at 2363.
22. Id. (Gorsuch, J., dissenting in part and concurring in part).
23. Id. at 2365.
24. Id. at 2365–66.
25. Id. at 2366.
26. Lindenbaum v. Realgy LLC, 2020 WL 6361915 (N.D. Ohio Oct. 29, 2020); Creasy v. Charter Communications Inc., 2020 WL 5761117 (E.D. La. Sept. 28, 2020).
27. Id. § 227(b)(1)(A)(iii).
28. Id. § 227(b)(3).
29. Id. § 227(b)(1)(A)(iii).
30. Id. § 227(a)(1).
31. See In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 F.C.C.R. 14014, 2003 WL 21517853 (1993) [hereinafter 2003 FCC Order]; In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 23 F.C.C.R. 559, 2003 WL 21517853 (2008); In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 27 F.C.C.R. 15391, 2012 WL 5986338 (2012); In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 30 F.C.C.R. 7961, 2015 WL 4387780 (2015).
32. 2003 FCC Order, 2003 WL 21517853, at 14093.
33. ACA Int’l v. FCC, 885 F.3d 687, 687 (D.C. Cir. 2018).
34. Id. at 701.
35. Gadelhak v. AT&T Servs., Inc., 950 F.3d 458 (7th Cir. 2020); Glasser v. Hilton Grand Vacations Co., 948 F.3d 1301 (11th Cir. 2020); Dominguez v. Yahoo Inc.!, 894 F.3d 116, 199 (3d Cir. 2018).
36. Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1051 (9th Cir. 2018); Duran v. La Boom Disco, Inc., 955 F.3d 279, 289–90 (2d Cir. 2020); Allan v. Pa. Educ. Assistance Agency, 968 F.3d 567 (6th Cir. 2020).
37. Facebook Inc. v. Duguid, 141 S. Ct. 1163 (2021).
38. Id. at 1169.
39. Justice Alito separately concurred to stress that the “series-qualifier canon” was a “useful tool” for interpreting text and not an “inflexible rule.” Justice Alito thus stressed that lower court judges should continue to give reasonable, commonsense readings to statutes rather than relying purely on canons. Id. at 1173–75 (Alito, J., concurring).
40. Id. at 1169.
41. Id. at 1170.
42. Id.
43. Id. at 1171.
44. Id.
45. Id. at 1171 n.6.
46. Id. at 1171–72.
47. Id. at 1172.
48. Id. at 1172–73.
49. See discussion supra.
50. See In re John C. Spiller et al., Case No. 21-35 (Mar. 2021) (forfeiture order) (File No. EB-TCD-18-0027781), https://docs.fcc.gov/public/attachments/FCC-21-35A1.pdf.
51. Facebook, 141 S. Ct. at 1172 n.7.
52. See, e.g., Gross v. GG Homes, Inc., No. 3:21-00271 (S.D. Cal. July 8, 2021); Miles v. Medicredit, Inc., No. 4:20-CV-01186 (E.D. Mo. July 14, 2021). Other courts, however, have been willing to dismiss claims that do not allege random or sequential number generation under Facebook. Timms v. USAA Fed. Sav. Bank, 2021 WL 2354931, at *3–4, *6–7 (D.S.C. June 9, 2021); Hufnus v. Donotpay Inc., 2021 WL 2585488 at *1 (N.D. Cal. June 24, 2021).
53. Facebook, 141 S. Ct. at 1173.