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Companies that currently use or plan to use facsimiles to communicate with their client base or customers should be aware of the rules and regulations recently issued by the Federal Communications Commission (FCC). Failure to comply with the Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C.227, as modified by the Junk Fax Protection Act of 2005 (JFPA), can be costly. Just ask Fax.com — a fax transmitter that was fined more than $5 million by the FCC for its ongoing failure to comply with the TCPA, or American Blast Fax, which, along with two officers, was subject to a judgment of nearly half a million dollars.

In the summer of 2005, Congress enacted the JFPA, which revised portions of the TCPA.These amendments included reinstatementand codification of the established business relationship (EBR) exemption. The act also required the FCC to issue rules and regulations implementing the JFPA. Those rules were released on April 6 of this year. They address EBRs; opt-out notices and opt-out requests; fax broadcasters and other third parties; professional and trade organizations; transactional messages; “free” goods and services; and violations of the TCPA. This article summarizes the TCPA—including the JFPA and FCC rules—and offers 10 steps for businesses to take to avoid or reduce liability for violations of the TCPA.

Congress enacted the TCPA in 1991 to address interstate telemarketing practices. To combat the sending of mass fax advertisements in the age of expensive “thermal” fax paper, one of the TCPA provisions imposes a ban on the sending of unsolicited fax ads. It states thatit is “unlawful...to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine.” The TCPA created aprivate right of action that permits an individual or company to recover actual damages or $500 per violation, whichever is greater. It further allows the recovery of treble damages if the sender’s actions are deemed “willful.”

EBR exemption allows faxing to existing customers

An “unsolicited advertisement” was defined to include fax advertisements sent without “prior express invitation or permission.” In 1992, the FCC concluded that senders should be able to fax ads to recipients who provide thesender prior permission, as well as to existing customers, which resulted in the EBR exemption. In other words, the FCC stated that ads faxed in the context of an EBR were not “unsolicited” under the TCPA.

In 2003, the FCC — in a surprise to many — reversed course and eliminated this EBR exception; it issued a rule requiring written express permission for all faxed advertisements. This new rule, however, never went into effect because of the uproar in the business community, the burdensome compliance requirements and interference with legitimate business relationships. In response, Congress codified the EBR exemption in the JFPA, permitting businesses and others to fax ads and other marketing materials based upon prior dealings and existing relationships.

Several states have passed their own junk fax laws that may provide separate remedies as well as attorney fees. These damages can quickly add up. One Texas court entered a judgment of almost $500,000 against American Blast Fax for faxes sent in violation of the TCPA over a six-month period. The FCC and state attorneys general are also authorized to enforce the TCPA and may seek damages and injunctive relief.

Plaintiffs’ attorneys are lining up to bring TCPA cases on behalf of individual clients or classes of plaintiffs who receive unsolicited faxed ads. As a result, a business may face significant liability and legal expenses if named as a defendant in such a case. To avoid or lessen the risk of litigation or liability, while engaging in permitted fax marketing, companies should take the following 10 steps:

10 Steps to reducing fax liability

• Ensure that all facsimile advertising complies with the TCPA, the JFPA and the new FCC rules. Fax marketing is not an option for contacting “prospects.” It is permitted to existing customers, provided that a company obtained the fax number from the recipient directly, the recipient voluntarily made the number publicly available, or the company had an EBR before July 9, 2005. The FCC set no time limits for EBRs in the facsimile context, but this could change. Fax ads must also have required notice language and opt-out numbers. Because the EBR exemption is now codified, the notice language will likely become a key issue in litigation involving fax marketing.
• Have a reliable opt-out procedure. A fax recipient on an EBR list who no longer wants to receive faxes must have the opportunity to opt out from receiving future faxes. A reliable system should be in place to track those recipients who want to opt out. Failure to comply with opt-out requests may result in a costly suit or an action by the FCC or a state attorney general. An opt-out request always trumps an EBR. Once one is made, no further marketing materials may be sent (unless the sender receives express prior consent) even if the recipient continues to do business with the fax marketer.
• Maintain records for at least four years. The statute of limitations for TCPA claims is four years. Businesses should maintain transmission databases, transmission records, opt-outs and other relevant information for at least four years. Without this backup data, it may be hard to challenge a claim, for example, that a plaintiff opted out or that a particular fax was only transmitted to 100 recipients rather than 1,000.
• Review insurance coverage. Some courts have held that policies providing coverage for “advertising injuries” include claims lodged against the insured under the TCPA. Others have rejected claims for coverage, holding that the recipient’s lost privacy resulting from an unsolicited fax is not the type of privacy contemplated by the parties at the time of contract. A company should review its policies, and, if a plaintiff files a claim against it, put its insurance carrier on notice. At a minimum, this claim may trigger a duty to defend even if the carrier ultimately does not cover the claim.
• Avoid class action litigation. Very expensive to defend, class action litigation also increases potential liability perhaps a hundredfold or more. Some TCPA defendants have been successful in defeating class action certification by arguing that each plaintiff’s relationship with the defendant is unique and requires analysis of individualized facts to determine if some exception, including an EBR, applies. It is important to get counsel involved early in these suits.
• Educate employees. Compliance is the key to avoiding liability and/or litigation. Several companies have faced litigation because an employee or contractor—attempting to engage in creative advertising—faxed ads in violation of the TCPA. Companies should review the TCPA’s requirements with their employees periodically; large ones should consider regulatory compliance training for all sales personnel. Having a compliance program may also be helpful in showing “good faith” when dealing with federal or state investigators.
• Review compliance with outside contractors. Companies can be held liable for their agents’ actions under the TCPA. If someone is faxing on a company’s behalf, the company may be liable should non-compliance occur.
• When practical, obtain permission. While written permission is not required, it makes a faxed advertisement “solicited” and helps protect a company should litigation arise. When obtaining verbal permission, a company should keep a record of the date and person who granted permission, and ask that person to confirm that he or she has authority to accept faxes at the particular number.
• Avoid purchased lists of fax numbers. A company will have no way to verify “opt-ins” to these lists. Once a fax is sent on a company’s behalf to a number on the list, it is the company that may face liability. The TCPA, as modified by the JFPA, permits faxing (with certain conditions) if there is prior consent or an EBR. But it is nearly impossible to meet the burden of proof with a purchased list.
• Don’t assume the company is exempt. The TCPA and the new rules apply to faxed ads sent to both residences and businesses. This is different from telemarketing rules that apply only to residences. And the FCC did not exempt small businesses or non-profit organizations. If a company is faxing material that advertises the commercial availability of goods, products or services, it must comply with all TCPA requirements. This is so even when advertising “free” items.

Guidelines are now better defined, and issues clarified

The passage of the JFPA in 2005 and the recently issued FCC rules have clarified certain issues that were previously subject to inconsistent interpretations by the courts. The statutory and regulatory guidelines are now better defined, which should result in reduced litigation provided that marketing and communication efforts are in compliance.

Nevertheless, plaintiffs will continue to pursue litigation related to faxes sent as long ago as 2002. Although little can be done to rectify past violations, by following the recommendations and best practices identified in this article, a company may significantly reduce its exposure to future suits and liability while engaging in permitted fax marketing with its customers. Communicating with past and present customers by fax can be a cost-effective, successful marketing tool. Compliance with the new requirements is a critical element of a marketing plan.

For More Information

Please contact Nancy M. Barnes or Michelle W. Cohen or any member of our Telecommunications practice group for more information.

Disclosure

This advisory may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions. Some of the design images and photographs in this document may be of actors depicting fictional scenes.