Mainstream Mktg. Serv., Inc., v. FTC: Federal Appellate Court Allows FTC to Administer and Enforce Do Not Call Registry

A federal appellate court has stayed a lower court's injunction which had stopped the Federal Trade Commission from administering and enforcing its rules ("Rules") related to the Do Not Call Registry ("Registry"). Based on this ruling, the new federal telemarketing rules are in effect and telemarketers will need to consult with the Registry prior to engaging in cold calling. The Registry is back online as of October 10, 2003 and the FTC will begin enforcing its rules on October 11, 2003 at 6 PM. The FCC is already enforcing its rules.

To learn more about how to comply with the Rules, click here.

For background on the recent court decisions related to the registry, click here.

Court Decision

The FTC appealed two rulings by a Colorado federal district court. In a challenge brought by a telemarketing trade group and member companies ("Challengers"), the lower court had first declared that the Registry and the Rules were unconstitutional because they impermissibly regulated telephone solicitations based on the content of the telephone solicitation. Based on this ruling, the lower court entered an injunction barring the FTC from administering and enforcing its rules. The lower court also denied a request by the FTC to stay its decision pending an appeal by the FTC. The FTC appealed both of these rulings.

The United States Court of Appeals for the Tenth Circuit stayed the injunction barring the FTC from administering the Registry and enforcing its rules. The court also set an expedited briefing schedule so that it could quickly consider the merits of the constitutional challenge to the Registry.

The court first looked at the standard the FTC would need to meet in order to obtain a stay of the lower court's order. In order to receive a stay, a party must demonstrate the following: first, likelihood of success on appeal; second, threat of irreparable harm if the stay or injunction is not granted; third, absence of harm to opposing parties if stay or injunction is granted; and finally, any risk of harm to the public interest. The court found that while the second and fourth elements favored the FTC, the third favored the Challengers. Thus, if the FTC could demonstrate a likelihood of success on the merits, the court would stay the lower court decision.

Next, the court looked at whether the FTC's appeal would succeed. The standard for whether restrictions on commercial speech are constitutional is the Central Hudson test. Under Central Hudson, the court must consider four factors: first, (1) whether the commercial speech regulated concerns a lawful activity and is not misleading. If so, the court must go on to consider the remaining factors, and the restriction is constitutional only if it (2) is intended to support an interest claimed by the government that is "substantial"; (3) directly advances the claimed governmental interest; and (4) is not more extensive than necessary to serve the interest claimed by the government. The lower court had determined that because the Registry allows consumers to ban certain commercial telemarketing calls, but not all calls (such as charitable solicitations), it failed the third step of the Central Hudson test by not allowing consumers to stop all calls.

Finding that the Challengers agreed that the first two steps in the Central Hudson test were satisfied, the court turned to the next step, to see whether there was a reasonable fit between the government's interest in protecting residential privacy and the FTC's Rules. Looking at the legislative history of the federal telemarketing rules, Congressional findings that commercial telephone solicitations like those regulated under the Registry were more intrusive on consumers' privacy than other types of calls supported the FTC's creation of the Registry.

The court also found that the Rules passed the fourth step of Central Hudson, as consumers had to register their number with the FTC in order to activate the Registry and also could eliminate calls like charitable solicitations through a specific request to the charitable organization. Thus, the court ruled that the FTC was likely to succeed on the merits of its appeal. Therefore, the court stayed the lower court's order and set an expedited briefing schedule so the court could hear the parties arguments on the merits.

Mainstream Mktg. Serv., Inc., v. FTC, No. 03-1429, 2003 WL 22293798 (10th Cir. Oct. 7, 2003). [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].

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