Mainstream Marketing Serv., Inc., v. F.T.C.

A federal appellate court has considered the constitutionality of the federal Do-Not-Call Registry ("Registry").

The United States Court of Appeals for the Tenth Circuit consolidated the appeals of various challenges to the Registry. Click here to read a summary of the earlier cases. As background, the Registry is administered by the Federal Trade Commission ("FTC"), pursuant to its telemarketing rules. The Federal Communications Commission ("FCC") also uses the Registry to enforce its telemarketing rules. The Registry allows consumers to stop commercial telephone solicitations by registering their phone number(s) with the FTC. Telemarketers are prohibited from calling anyone whose telephone number is in the Registry unless they meet certain criteria, impacting the cold-calling activities of real estate professionals. As of this writing, consumers had registered approximately 50 million phone numbers. Click here to learn more about the telemarketing rules.

The main issue for the court to consider on appeal was whether the First Amendment of the United States Constitution prohibits the government from creating the Registry. One court had ruled that the Registry impermissibly regulated telephone solicitations based on the content of the telephone solicitation, and so declared the Registry unconstitutional.

Looking at the Registry rules, the court found that the rules only regulated commercial speech and so the court applied a test developed in a previous US Supreme Court decision know as Central Hudson test to evaluate the constitutionality of commercial speech regulations. Under Central Hudson, a regulation must satisfy a three-part test in order to be found constitutional. First, the government must assert a substantial interest as the basis for its regulation. Second, the regulation must directly advance the stated governmental interest, and must regulate no further than the stated governmental interest. Finally, the regulation must be "narrowly" tailored to accomplish its stated objective.

Applying Central Hudson to the Registry rules, the court found that the government's stated interest of protecting the residential privacy of consumers and also protecting consumers from fraudulent and/or abusive solicitation were substantial governmental interests. Therefore, the Registry satisfied the first prong of Central Hudson.

Second, the court found that the Registry rules advanced the government's stated interests. The court found that the Registry allowed consumers to block a significant number of telephone calls that the legislative record showed consumers had found to be annoying, namely unsolicited telemarketing calls. Further, the court found that because the Registry is an "opt-in", it only stops solicitations to consumers who have chosen to not receive these calls.

The challengers to the Registry argued that the Registry was unconstitutionally under inclusive, since it only allowed consumers to bar commercial solicitations but not charitable or political solicitations. The court rejected this argument, determining that an under inclusive challenge can only succeed if the underinclusiveness of the legislation made the regulation so irrational that it failed to advance the stated governmental interest. Here, the Registry was directed at the types of calls which met the government's stated interest in creating these rules. Since the Registry rules were not irrationally underinclusive, the court rejected the underinclusiveness challenge to the Registry and found that it passed the second prong of Central Hudson.

Finally, the court ruled that the Registry was narrowly tailored to accomplish the government's stated goals. Since the Registry did not regulate telephone solicitations generally but rather only solicitations to individuals who had stated their preference to not receive such calls, the court determined that the Registry did not attempt to over regulate solicitations and thus was narrowly tailored. Thus, the Registry passed the all parts of the Central Hudson test and so the court ruled that the Registry was constitutional.

The court considered the remaining challenges to the Registry before the court. First, the court considered whether the fees charged by the Registry for access to more than five area codes constituted an impermissible tax on speech. The court stated that while the government may not impose a tax on the enjoyment of free speech rights, the Registry fees were permissible because they were an incidental fee designed to help the government defray the administrative costs of legitimate government regulations.

The next challenge the court considered was whether the FCC violated administrative procedure rules in its process of creating the established business relationship exception to the Registry by failing to examine the anticompetitive effects of such an exception. The rules permit telephone solicitations to existing clients and customers, and extends for up to 18 months after the end of a transaction. If a consumer makes an inquiry to a business, the business can call the person for up to three months after the inquiry. The court found the FCC had requested comments on this subject during its rulemaking procedures, and had considered different options in creating this exception. Since the FCC did not act in an arbitrary manner in creating the established business relationship exception, the court found that the FCC had complied with the administrative law requirements.

Finally, the court considered whether the FTC had the power to administer and create the Registry. The court found that not only did the FTC have the requisite statutory authority to take such actions, subsequent actions by Congress explicitly granting the FTC such authority removed any doubt about the FTC's authority. Thus, the court upheld the Registry against the various challenges brought against it.

Mainstream Marketing Serv., Inc., v. F.T.C., Nos. 03-1429, 03-9594, 03-6258, 03-9571, 2004 WL 296980 (10th Cir. Feb. 17, 2004). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].