Do Not Call Registry to Reduce Telemarketing?

In the past few months, Americans (including six million Californians) have placed more than 50 million home and cellular telephone numbers on the Federal Trade Commission’s new “Do Not Call” registry. Under FTC rules that were to take effect October 1, most telemarketers would be precluded from dialing numbers on the registry. The registry is an unprecedented effort by the federal government to act as a gatekeeper between marketers and the consumers they are trying to reach.

Not surprisingly, the telemarketing industry challenged the FTC’s rules. Two federal court rulings in late September have raised uncertainty about whether the rules can be enforced starting October 1, despite strong support from Congress and the Bush Administration. The battle now moves to the federal appellate courts, which will balance commercial free speech rights with the government’s regulatory powers and the public’s desire to be left alone. For now, consumers who signed up for the registry can expect the phone to continue to ring at dinnertime.

California Enacts Tough Anti-Spam Law

California has enacted one of the toughest anti-spam laws in the nation. Senate Bill 186, which will take effect January 1, prohibits unsolicited commercial e-mail, whether or not deceptive. The law applies to commercial e-mail except when the recipient has consented to the transmission or when the recipient has a pre-existing business relationship with the advertiser. Although an e-mail address does not reveal the recipient’s geographic location, the law applies to any e-mail sent to a California recipient, as well as to e-mail sent from California. Penalties are stiff. The Attorney General, an electronic mail service provider, or any individual spam recipient may sue for liquidated damages of $1,000 per unlawful message. If the same unsolicited message is sent to a thousand or more recipients, the liability can reach $1 million. To encourage enforcement, the law also awards attorneys’ fees to prevailing plaintiffs.

Critics rightly question whether SB 186 will stem the tide of unwanted e-mail, and court challenges or federal legislation may block implementation of the California law. But all marketers immediately should review their use of e-mail and be ready for SB 186 to take effect in 2004. “Cold e-mails” to prospective customers must cease. Marketers cannot purchase or rent prospect lists for an e-mail campaign, nor can they generate their own lists by can they generate their own lists by reviewing web sites of potential customers. To pitch unsolicited prospects, marketers will have to return to the “old” means of communication, such as snail mail and the telephone.

New Rules on Unsolicited Faxes Delayed

In July, the Federal Communications Commission approved modifications to its rules on unsolicited commercial faxes. The new rules would require senders to obtain written permission before sending faxes, even if they have an existing business relationship with the recipient. Businesses loudly protested the modifications, so the FCC agreed to postpone enforcement until January 1, 2005, which will give the agency time to reconsider.

In the meantime, look for increased enforcement of the FCC’s existing rules on unsolicited faxes. In July, the California Attorney General filed suit against Fax.com, a major fax broadcaster, seeking $15 million in civil penalties. Also in July, the California Court of Appeal held that consumers who receive unsolicited faxes in violation of the FCC rules may pursue class actions in state court.

Nike Settles Landmark False Advertising Case

The last Downey Brand Advertising & Marketing Law Update focused on the case of Kasky v. Nike, Inc. and what it meant for businesses that advertise in California. (Kasky claimed that Nike made false statements regarding its overseas labor practices.) In September, Nike announced that it had settled with Kasky. The settlement does not affect the vitality of the California Supreme Court’s decision that companies may be sued for false advertising even when they are responding to public criticism, not touting a particular product. That issue eventually will be resolved by the U.S. Supreme Court, although Nike probably will not be the advertiser that carries the torch.

Gift Cards Can’t Carry Dormancy Fees

For several years California law has precluded the sale of gift certificates bearing expiration dates. Assembly Bill 1092, recently signed by the Governor, expressly extends the ban to the dormancy fees that many retailers impose on gift cards after a specified period of non-use. With a few exceptions, the new law will preclude the deduction of dormancy fees from any gift card sold in California on or after January 1. Large retailers will face a product segregation challenge: if they choose to charge dormancy fees on gift cards sold in other states, they will have to separately track the cards they sell in California.

Large Online Retailers Can Be Sued in California

The U.S. Ninth Circuit Court of Appeals held in September that Maine-based L.L. Bean, Inc. could be sued in California even though it has no offices or brick-and-mortar stores in the Golden State. The company’s elaborate and successful e-commerce site alone was sufficient to allow it to be sued in California, despite the company’s protests to the contrary. While the ruling was not surprising, it confirms that those who market to California consumers over the Internet should be ready to defend themselves in the state’s courts.

Kay-Bee Toys Settles Deceptive Pricing Cases

The Sacramento and Napa County District Attorneys settled a false advertising suit with Kay-Bee Toys. The DAs charged that Kay-Bee misleadingly had advertised its regular prices as sale prices. Kay-Bee agreed to pay $500,000 in civil penalties and costs to the DAs, and to make toy donations valued at nearly $700,000. Kay Bee also agreed to offer $3 million in discounts to consumers to settle a similar class action suit, which had been filed in Illinois.

Advertising & Marketing Law Update is a publication of Downey Brand LLP