Reed Smith Client Alert

In the past three years, courts across the country have seen an explosion in Telephone Consumer Protection Act litigation. In large part, the TCPA has become the darling of the plaintiffs’ bar because its formula for recovery is so simple:

  • Did the defendant send the plaintiff a text message, or call the plaintiff and/or leave a message using a prerecorded voice?
  • Did the defendant use an “automatic telephone dialing system” to send that text or make that call?

If so, unless the message was for emergency purposes or the defendant had the plaintiff’s prior express consent, the plaintiff will demand $500 in statutory damages per call or text. For willful violations, the TCPA provides a recovery of up to $1,500 per call or text. Because there is no statutory cap, class action damages under the TCPA can quickly mount to catastrophic levels.

While the TCPA is straightforward in many respects, its application in the face of technological advances is much more complex. The statutory definition of an “automatic telephone dialing system” has remained unchanged since Congress passed the TCPA in 1991. But depending upon an upcoming Federal Communications Commission decision, the term could now encompass electronic devices that most of the public carries with them or uses every day.

Statutory Text and Interpretation

Under the TCPA, it is unlawful “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 a cellphone or to certain other types of devices for which the caller may be charged for incoming calls.1 The TCPA defines an “automatic telephone dialing system” as:
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.2

In 1991, “automatic telephone dialing systems” were being used by mass marketers and scam artists to call house after house or business after business. These telephone abusers were in fact having their autodialers call random telephone numbers to leave prerecorded voice messages, or methodically working through sequentially numbered telephone numbers to leave those messages. There was — and is — no ambiguity that such equipment met the statutory definition of an “automatic telephone dialing system,” and that such activity triggered the TCPA’s statutory damages.

Then the information economy changed. Consumer information became more readily available. Mass marketers used autodialers less and less to call random numbers, or to work through all possible numbers. Instead, they started to buy contact lists, feed those numbers to the autodialers, and leave prerecorded voice messages for a more targeted audience.

But the FCC has the authority to interpret the TCPA, including the ability to ensure that the statute keeps up with technology. In 2003, the commission clarified that an autodialer need not actually store, produce, or dial random or sequential numbers for it to be an “automatic telephone dialing system.” The autodialer only must have the capacity to do so, as stated in the statute. Pursuant to this 2003 TCPA order, even an autodialer that is programmed with a nonrandom, nonsequential list of phone numbers is an “automatic telephone dialing system” and subject to the TCPA, as long as the equipment has the “capacity” to “store or produce telephone numbers to be called, using a random or sequential number generator and to dial such numbers.”3 The FCC also clarified that a “call” under the act includes an SMS text message.4

In 2008, the FCC reaffirmed that “automatic telephone dialing systems” include so-called predictive dialers, at least for some purposes.5 A predictive dialer helps representatives automatically dial telephone numbers in a manner that anticipates the time when a consumer will answer the phone and a representative of the caller will be available to take the call. There is considerable debate regarding whether predictive dialers used for noncommercial purposes are “automatic telephone dialing systems.”6 However that issue is resolved, in 2003 and even in 2008, the equipment covered by the TCPA was still overwhelmingly owned and operated by businesses.

In the past several years, however, the market for mobile phones has skyrocketed. While the technology for SMS texting had long existed, a country armed with smartphones now started to communicate by text as matter of daily life. Virtually no consumers had previously owned autodialers capable of storing, producing and leaving messages, but sending group text messages today is a common occurrence. Smartphones and mobile devices can send group texts by downloading widely available applications. Any desktop or laptop computer can do the same by using Web applications. Are all of these computers, smartphones and mobile devices therefore “automatic telephone dialing systems” because they have the capacity to text random or sequential numbers?

The GroupMe Petition Before the FCC

This is far from an academic question. The FCC currently is considering the petition of GroupMe Inc./Skype Communications S.A.R.L.7 because of putative class action litigation on this very point. The GroupMe application allows users to send text messages to groups of friends. The app is free to download and free to use. Users agree to use the application only for noncommercial purposes and they agree that they obtained prior express consent from the individuals they add to the group to receive text messages from GroupMe and from other group members.

Nevertheless, one individual group member sued GroupMe Inc. in a putative nationwide class action alleging that GroupMe violates the TCPA when it sends one or more emails to members of a group either when they join a group or if they do not respond to the group creator’s invitation to join a group.8 The first amended complaint alleges that marketers in general use bulk SMS to send mass texts without consent, but does not specifically allege that is the purpose of GroupMe’s app or that GroupMe’s app is used by marketers as such. (This claim has not been tested in discovery — as GroupMe notes in its petition, “Mom" and "Dad" are the most common group names on GroupMe's servers.)9

Among the potentially dispositive issues in dispute, GroupMe challenged the idea that computers, smartphones and devices used to send text messages are “automatic telephone dialing systems” (shortened to ATDS in the briefing) under the TCPA.

The GroupMe litigation (Glauser) was stayed pending resolution by the FCC of the Club Texting Petition and the notice of proposed rulemaking that ended on Feb. 15, 2012. GroupMe requests, among other relief, that the FCC “adopt a definition of ATDS that excludes technologies with a theoretical capacity, but not the actual capability, to autodial random or sequential numbers."10

GroupMe notes that without clarification by the FCC, the “TCPA’s ATDS definition now seemingly encompasses everything from equipment that actually randomly or sequentially generates and dials telephone numbers to the ubiquitous smartphone or laptop computer which may have the capacity to perform those same functionalities, albeit only after a significant re-design of the software.”11 The petition alleges that “tens of millions of smartphones” can be altered to “either unlock a dormant ATDS function or add such a function via new software.”12

Ultimately, GroupMe proposes that the commission adopt a definition “that encompasses only equipment that, at the time of use, could, in fact, have employed the functionalities described in the TCPA without human intervention and without first being technologically altered.”13

A number of commenters have supported GroupMe’s Petition. For example, the U.S. Chamber of Commerce stressed the plain text of the statute. The chamber notes that “the TCPA, by its language, only applies to ‘equipment which has the capacity” to dial randomly or sequentially.14 The chamber cites cases from multiple contexts — from trademark enforcement to environmental law to estate law — in which courts have construed the term “capacity” to mean “present capacity.”15

The chamber also cites to the history and purpose of the TCPA, which was intended to reduce unwanted telemarketing calls. Nothing in the TCPA suggests a desire to “prohibit businesses from using cost-effective technologies to provide consumers with highly desirable non-marketing information in a timely manner”; yet, the chamber argues, “the broad definition of ‘capacity’ that plaintiffs’ lawyers advocate would do just that.”16 The chamber even points to attempts by plaintiffs to penalize manually dialed calls where phone and computer systems are interconnected.17

In opposing GroupMe’s request, Glauser argues that while the FCC can clarify the TCPA, the FCC cannot amend the TCPA to make “capacity” mean “current capacity.”18 Glauser posits that adopting GroupMe’s position would allow companies to evade the TCPA by segmenting operations and use of technology. Glauser also notes that GroupMe’s definition would make it nearly impossible for plaintiffs to allege that an automatic telephone dialing system was used.19

Why This Matters

The TCPA has become a thorn in the side of corporate America. If the plaintiffs’ bar succeeds in having virtually every laptop, desktop and smartphone construed as an automatic telephone dialing system, small businesses or even individuals may be swept up into the mess. Group texting is rampant. According to a recent report on the mobile data market, one messaging application (WhatsApp) and its subscribers sent more text messages last year than all of the mobile operators in the United States combined.20

GroupMe, now a subsidiary of Skype, continues to provide group texting services, in English and 11 other languages. If each of these texts is subject to the TCPA, each requires prior express consent, whether the group list brings together family members, classmates, friends or any other group. Every personal relationship that sours could then bring with it TCPA litigation at $500 per group text over whether prior express permission to group text was given, and when, and with what limitations. In a broader sense, the automatic telephone dialing system dispute is symptomatic of privacy law at the crossroads, needing to choose whether mere technicalities or substantive consumer protection will prevail.

1 Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(A)(iii).

2 Telephone Consumer Protection Act, 47 U.S.C. § 227(a)(1).

3 FCC, In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 47 CFR Parts 64 and 68, ¶¶ 94-97 (July 25, 2003).

4 Id. at ¶ 165. There is still some controversy regarding whether a message sent over the Internet but which results in a text is a “call” within the meaning of the Act. See Petition for an Expedited Clarification and Declaratory Ruling, Revolution Messaging, LLC, CG Docket No. 02-278 (filed Jan. 19, 2012).

5 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Declaratory Ruling, 23 FCC Rcd 559 (2008).

6 Petition of Communication Innovators, CG Docket No. 02-278 (filed June 7, 2012)

7 Petition of GroupMe Inc./Skype Communications S.A.R.L., CG Docket No. 02-278 (filed Mar. 1, 2012) (“GroupMe Petition”). The GroupMe petition is one of a number of requests that the FCC has received to clarify the definition of automatic telephone dialing systems. See, e.g., Petition of YouMail Inc., CG Docket No. 02-278 (filed Apr. 19, 2013) (seeking a declaration that YouMail's “virtual assistant services” software is not an automatic telephone dialing system).

8 Glauser v. Twilio Inc. et al, U.S. District Court for the Northern District of California, No. 4:11-cv-02584-PJH.

9 GroupMe Petition at 6.

10 GroupMe Petition at ii.

11 GroupMe Petition at 2.

12 GroupMe Petition at 10.

13 GroupMe Petition at 3.

14 U.S. Chamber of Commerce’s Comments on GroupMe’s Petition for Expedited Declaratory Ruling and Clarification, CG Docket No. 02-278 (filed Aug. 30, 2012) (“Chamber Comment”) at 6.

15 Id. at 6-8.

16 Id. at 10-11.

17 Id. at 11.

18 Brian Glauser’s Comments on GroupMe’s Petition for Expedited Declaratory Ruling and Clarification, CG Docket No. 02-278 (filed Sept. 6, 2012) (“Glauser Comment”).

19 Glauser Comment at 20.

20 Chetan Sharma Consulting, US Wireless Market Update Q1 2013, at 6.