Text Messaging

As text messaging grows in popularity, it is an increasingly more attractive way for companies to reach target audiences. Recent industry statistics show that more than 270 million Americans ' over 85% of the population ' subscribe to cellular phone services. An estimated 57% of all mobile subscribers ages 13 and older use text messaging regularly. In fact, according to a Nielson study, “[t]ext messaging has become so popular ' that U.S. mobile subscribers now send and receive more text messages in a month than they make phone calls,” including the “typical U.S. mobile subscriber between the ages of 35 and 44.” But text message advertising has legal pitfalls that companies should avoid, as a recent decision in the Ninth Circuit Court of Appeals, Satterfield v. Simon & Schuster, highlights.

'Text Spamming'

In recent years, consumers, cellular telephone providers, and state attorneys general have sued companies and their marketing firms under the Telephone Consumer Protection Act (“TCPA”) and state consumer protection laws to curb “text spamming.” In 2007, for example, cellular providers aggressively sued telemarketers under the TCPA and state fraud and privacy laws for unsolicited text messages. In addition to marketing firms, plaintiffs are also suing the companies who hire marketing firms for promotional campaigns. These suits can result in substantial settlements of millions of dollars relating to a single promotional campaign.

The Satterfield Case

Satterfield paved the way for more of these lawsuits by ruling, in a case of first impression in the federal appeals courts, that text messages are “calls” under the TCPA. (An Arizona appellate court has also held that an unsolicited text message is a “call” under the Act's definition.)

Laci Satterfield, the plaintiff in the case, had registered as a Nextones Member in order to receive a free ringtone on her son's cell phone. She checked a box that stated “Yes! I would like to receive promotions from Nextones affiliates and brands ' ” and clicked the “ Submit” button. According to the Nextones Web site, “By clicking Submit, you accept that you have read and agreed to the Terms and Conditions,” which stated that Nextones and its affiliates may use a user's mobile phone number in connection with any text message offering or other campaign.

Six months later, plaintiff's son received the following text message on behalf of Simon & Schuster promoting a new book by Stephen King: “The next call you take may be your last ' Join the Stephen King VIP Mobile Club at www.cellthebook.com RplySTOP2OptOut. Pwdby-Nexton.” Simon & Schuster did not send the actual text message, but outsourced the promotional campaign to defendant ipsh!, a mobile marketing firm, and instructed ipsh! to send the texts to adults ages 18 to 50 who had opted to receive advertising on their mobile phones. Ipsh! in turn obtained a list of 100,000 cell phone numbers, including plaintiff's, from Nextones' agent, Mobile Interactive Agency (MIA).

Plaintiff filed a class action on behalf of those similarly situated against Simon & Schuster, Inc. and ipsh! under the TCPA. Nextones and MIA were not named defendants.

The TCPA prohibits entities from using an “automatic telephone dialing system” ' equipment that has “the capacity to store or produce telephone numbers to be called, using a random or sequential number generator” ' to make a “call” to a “telephone number assigned to a cellular telephone service” made without “the prior express consent of the called party.”

A successful plaintiff can recover $500 or the actual money lost for each violation, whichever is more. Additionally, if a defendant acted willfully or knowingly, the damages can be trebled. The statute does not provide for attorneys' fees, but if a claim under the TCPA were paired with a UCL claim, it is possible a successful plaintiff would try to look to the private attorney general statute for fees. Moreover, violators who willfully or repeatedly violate the TCPA are subject to fines by the FCC of up to $16,000 per violation.

The TCPA does not afford federal question jurisdiction, so to sue in federal court, a plaintiff has to satisfy another basis for federal jurisdiction, such as diversity or supplemental jurisdiction.

The District Court's Ruling

In Satterfield, the district court granted summary judgment for the defendants, finding that the equipment they used was not an “automatic telephone dialing system” and that the plaintiff had consented to receiving the promotional message.

On the consent issue, the court reasoned that the plaintiff had agreed to receive promotions from Nextones brands and that “PwdbyNexton” had branded the text message as coming from Nextones and thus identified the message with a Nextones brand. The court did not decide whether text messages are “calls” under the TCPA.

The Ninth Circuit Reversal

The Ninth Circuit reversed, finding that: 1) text messages are calls under the TCPA; 2) Simon & Schuster was not an “affiliate” of Nextones and the message did not relate to a Nextones brand, so Satterfield had not consented to the message; and 3) questions of fact remained about the nature of the equipment used and whether it was an “automatic telephone dialing system.”

On the first point, the Ninth Circuit recognized that the TCPA does not define “call,” but noted that the Federal Communications Commission (“FCC”) interpreted “call” to include text messages. Applying Chevron deference, the court found the FCC's interpretation reasonable in light of the statutory text, the dictionary definition of “call,” and the legislative history and intent of the TCPA.

Just as significant, on the second point, the court ruled as a matter of law that “no express consent was given in this case.” This is a remarkable part of the decision in that the court ruled that there was no express consent as a matter of law, rather than simply finding that there was a fact issue to be determined at trial. According to the court, plaintiff “solely consented to receiving promotional material from Nextones or their affiliates and brands.” The court, as a matter of law, construed the term “affiliate” narrowly as having “its own, independent legal significance,” requiring a corporate relationship “to another corporation by shareholdings or other means of control.” Because the record confirmed that Nextones neither owned nor controlled Simon & Schuster and was not a subsidiary of Simon & Schuster, they were not affiliates.

Similarly, the court construed “brands” narrowly. According to the court, under the district court's “logic, any company sending a text message could simply include 'PwdbyNexton' and it would be considered a 'brand' of Nextones.” Because the contract was silent on the meaning of “brand,” the court relied on the dictionary definition “a class of goods identified as being the product of a single firm or manufacturer.” Applying this definition, the court found that the promotional message was not for a “Nextones brand” because the message was a product of Simon & Schuster, not Nextones; Nextones's only role was supplying the numbers to its agent MIA; and there was no agreement between Nextones and Simon & Schuster. The court concluded that plaintiff's “consent to receive promotional material by Nextones and its affiliates and brands cannot be read as consenting to the receipt of Simon & Schuster's promotional material.” It is not clear whether a simple written agreement between Simon & Schuster and Nextones would have sufficed to address the court's concern.

On the third point, the Ninth Circuit found that the key issue was whether the equipment at issue had the capacity to store or produce telephone numbers to be called, using a random or sequential number generator (even if that capacity had not been used) and remanded the issue for further factual development.

Conclusion

In the wake of Satterfield, a company planning to target consumers through text messaging should consult knowledgeable counsel familiar with the TCPA and state consumer protection laws that may be implicated. Counsel should also be familiar with other relevant FCC rules and regulations. For example, FCC rules also prohibit sending unsolicited text messages to a wireless phone that is listed on the national Do-Not-Call registry unless an exception applies. In addition to consulting competent counsel, the company must understand how its marketing department or, if it outsources such work, the marketing agency, complied the list of subscribers ' i.e., was it compiled using an automatic telephone dialing system, whether subscribers are on a Do-Not-Call list, and whether the recipients have expressly consented to receiving the promotional message at issue.

On the issue of consent, as Satterfield makes plain, courts may construe narrowly what the subscriber has consented to receive. Thus, the company should demand copies of the purported written consent and determine whether it covers the promotional message at issue. If the company outsources its promotional campaign, it should include provisions in the service agreement to require compliance with TCPA and other relevant laws and a broad indemnity provision that shifts the risk of liability to the service provider.

David Kiernan and Caroline Mitchell are attorneys in the Trial Practice Group of the San Francisco Office of Jones Day.

As text messaging grows in popularity, it is an increasingly more attractive way for companies to reach target audiences. Recent industry statistics show that more than 270 million Americans ' over 85% of the population ' subscribe to cellular phone services. An estimated 57% of all mobile subscribers ages 13 and older use text messaging regularly. In fact, according to a Nielson study, “[t]ext messaging has become so popular ' that U.S. mobile subscribers now send and receive more text messages in a month than they make phone calls,” including the “typical U.S. mobile subscriber between the ages of 35 and 44.” But text message advertising has legal pitfalls that companies should avoid, as a recent decision in the Ninth Circuit Court of Appeals, Satterfield v. Simon & Schuster, highlights.

'Text Spamming'

In recent years, consumers, cellular telephone providers, and state attorneys general have sued companies and their marketing firms under the Telephone Consumer Protection Act (“TCPA”) and state consumer protection laws to curb “text spamming.” In 2007, for example, cellular providers aggressively sued telemarketers under the TCPA and state fraud and privacy laws for unsolicited text messages. In addition to marketing firms, plaintiffs are also suing the companies who hire marketing firms for promotional campaigns. These suits can result in substantial settlements of millions of dollars relating to a single promotional campaign.

The Satterfield Case

Satterfield paved the way for more of these lawsuits by ruling, in a case of first impression in the federal appeals courts, that text messages are “calls” under the TCPA. (An Arizona appellate court has also held that an unsolicited text message is a “call” under the Act's definition.)

Laci Satterfield, the plaintiff in the case, had registered as a Nextones Member in order to receive a free ringtone on her son's cell phone. She checked a box that stated “Yes! I would like to receive promotions from Nextones affiliates and brands ' ” and clicked the “ Submit” button. According to the Nextones Web site, “By clicking Submit, you accept that you have read and agreed to the Terms and Conditions,” which stated that Nextones and its affiliates may use a user's mobile phone number in connection with any text message offering or other campaign.

Six months later, plaintiff's son received the following text message on behalf of Simon & Schuster promoting a new book by Stephen King: “The next call you take may be your last ' Join the Stephen King VIP Mobile Club at www.cellthebook.com RplySTOP2OptOut. Pwdby-Nexton.” Simon & Schuster did not send the actual text message, but outsourced the promotional campaign to defendant ipsh!, a mobile marketing firm, and instructed ipsh! to send the texts to adults ages 18 to 50 who had opted to receive advertising on their mobile phones. Ipsh! in turn obtained a list of 100,000 cell phone numbers, including plaintiff's, from Nextones' agent, Mobile Interactive Agency (MIA).

Plaintiff filed a class action on behalf of those similarly situated against Simon & Schuster, Inc. and ipsh! under the TCPA. Nextones and MIA were not named defendants.

The TCPA prohibits entities from using an “automatic telephone dialing system” ' equipment that has “the capacity to store or produce telephone numbers to be called, using a random or sequential number generator” ' to make a “call” to a “telephone number assigned to a cellular telephone service” made without “the prior express consent of the called party.”

A successful plaintiff can recover $500 or the actual money lost for each violation, whichever is more. Additionally, if a defendant acted willfully or knowingly, the damages can be trebled. The statute does not provide for attorneys' fees, but if a claim under the TCPA were paired with a UCL claim, it is possible a successful plaintiff would try to look to the private attorney general statute for fees. Moreover, violators who willfully or repeatedly violate the TCPA are subject to fines by the FCC of up to $16,000 per violation.

The TCPA does not afford federal question jurisdiction, so to sue in federal court, a plaintiff has to satisfy another basis for federal jurisdiction, such as diversity or supplemental jurisdiction.

The District Court's Ruling

In Satterfield, the district court granted summary judgment for the defendants, finding that the equipment they used was not an “automatic telephone dialing system” and that the plaintiff had consented to receiving the promotional message.

On the consent issue, the court reasoned that the plaintiff had agreed to receive promotions from Nextones brands and that “PwdbyNexton” had branded the text message as coming from Nextones and thus identified the message with a Nextones brand. The court did not decide whether text messages are “calls” under the TCPA.

The Ninth Circuit Reversal

The Ninth Circuit reversed, finding that: 1) text messages are calls under the TCPA; 2) Simon & Schuster was not an “affiliate” of Nextones and the message did not relate to a Nextones brand, so Satterfield had not consented to the message; and 3) questions of fact remained about the nature of the equipment used and whether it was an “automatic telephone dialing system.”

On the first point, the Ninth Circuit recognized that the TCPA does not define “call,” but noted that the Federal Communications Commission (“FCC”) interpreted “call” to include text messages. Applying Chevron deference, the court found the FCC's interpretation reasonable in light of the statutory text, the dictionary definition of “call,” and the legislative history and intent of the TCPA.

Just as significant, on the second point, the court ruled as a matter of law that “no express consent was given in this case.” This is a remarkable part of the decision in that the court ruled that there was no express consent as a matter of law, rather than simply finding that there was a fact issue to be determined at trial. According to the court, plaintiff “solely consented to receiving promotional material from Nextones or their affiliates and brands.” The court, as a matter of law, construed the term “affiliate” narrowly as having “its own, independent legal significance,” requiring a corporate relationship “to another corporation by shareholdings or other means of control.” Because the record confirmed that Nextones neither owned nor controlled Simon & Schuster and was not a subsidiary of Simon & Schuster, they were not affiliates.

Similarly, the court construed “brands” narrowly. According to the court, under the district court's “logic, any company sending a text message could simply include 'PwdbyNexton' and it would be considered a 'brand' of Nextones.” Because the contract was silent on the meaning of “brand,” the court relied on the dictionary definition “a class of goods identified as being the product of a single firm or manufacturer.” Applying this definition, the court found that the promotional message was not for a “Nextones brand” because the message was a product of Simon & Schuster, not Nextones; Nextones's only role was supplying the numbers to its agent MIA; and there was no agreement between Nextones and Simon & Schuster. The court concluded that plaintiff's “consent to receive promotional material by Nextones and its affiliates and brands cannot be read as consenting to the receipt of Simon & Schuster's promotional material.” It is not clear whether a simple written agreement between Simon & Schuster and Nextones would have sufficed to address the court's concern.

On the third point, the Ninth Circuit found that the key issue was whether the equipment at issue had the capacity to store or produce telephone numbers to be called, using a random or sequential number generator (even if that capacity had not been used) and remanded the issue for further factual development.

Conclusion

In the wake of Satterfield, a company planning to target consumers through text messaging should consult knowledgeable counsel familiar with the TCPA and state consumer protection laws that may be implicated. Counsel should also be familiar with other relevant FCC rules and regulations. For example, FCC rules also prohibit sending unsolicited text messages to a wireless phone that is listed on the national Do-Not-Call registry unless an exception applies. In addition to consulting competent counsel, the company must understand how its marketing department or, if it outsources such work, the marketing agency, complied the list of subscribers ' i.e., was it compiled using an automatic telephone dialing system, whether subscribers are on a Do-Not-Call list, and whether the recipients have expressly consented to receiving the promotional message at issue.

On the issue of consent, as Satterfield makes plain, courts may construe narrowly what the subscriber has consented to receive. Thus, the company should demand copies of the purported written consent and determine whether it covers the promotional message at issue. If the company outsources its promotional campaign, it should include provisions in the service agreement to require compliance with TCPA and other relevant laws and a broad indemnity provision that shifts the risk of liability to the service provider.

David Kiernan and Caroline Mitchell are attorneys in the Trial Practice Group of the San Francisco Office of Jones Day.