D.C. Circuit Ruling Lets FTC Decide … Without Deciding

Legal and regulatory issues
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Daniel S. Blynn

In a blow to the soundboard industry, the D.C. Circuit Court of Appeals recently ruled – in Soundboard Association v. FTC – that the Federal Trade Commission’s (FTC) November 2016 opinion letter, which reclassified soundboard technology as “robocalls” under the Telemarketing Sales Rule (TSR), is not subject to judicial review.  

Soundboard technology allows telemarketers to communicate in real-time, dynamic, two-way conversations utilizing pre-recorded audio clips. These differ from the type of pre-recorded message contemplated by the drafters of the TSR in that there is a live agent monitoring the call and selecting the appropriate clip depending on the situation.  The FTC’s 2016 opinion letter rescinded a 2009 letter that concluded that calls made with soundboard technology are not subject to the same restrictions as robocalls under the TSR.

The issue before the D.C. Circuit, however, was procedural: whether the Association would be able to challenge this new interpretation of the law, which effectively shuts down the entire soundboard industry. The merits of the soundboard practice were not at issue.

In a 2-1 decision, the majority found that the opinion letter “does not constitute the consummation of the Commission’s decision-making process by its own terms and under the FTC’s regulations, it is not final agency action.” Essentially, to challenge agency action under the Administrative Procedure Act (APA), the action must be the “final word” from the agency.

In this case, the court found the 2016 opinion letter was not the final word because the FTC’s procedures say it is not. A staff opinion letter technically is not the binding decision of the agency, according to the FTC. As a result, the FTC could make a policy change with huge effects on the telemarketing industry without being subject to administrative rulemaking procedures, namely notice and comment or judicial review.

One reaction to this would be: “Why let reality get in the way of a good bureaucratic construct?” Circuit Judge Patricia Millett opened her strongly worded dissent with this rhetorical question, reasoning that the FTC does not have to label a decision as final for it to function as such.

Judge Millett critiqued the majority for only viewing finality from the perspective of the agency and not considering the industry that either must comply with the staff opinion or face an enforcement action that likely would include a substantial fine and injunction.  According to the dissent, “when agency action is final enough that business-ending compliance is expected by a date certain, it should be final enough for judicial review.”

The difference between the two opinions boils down to one of form versus function. The majority’s opinion arguably makes sense according to the letter of the law. The dissent finds that result fundamentally unfair and, instead, proposes a functional interpretation that accommodates both the real-world ramifications and the requirements of the APA. The Soundboard Association may seek en banc review of the case. 

This decision could have serious implications for industries subject to FTC oversight, and is one companies in the performance marketing space should continue to track.