Rules for Marketing by Fax Become More Complicated

An unsolicited fax that touts a vacation package may be lawful if sent from Las Vegas but prohibited if transmitted from Los Angeles. That's the strange result of a federal court ruling that partially invalidates California's recent attempt to curb unwanted faxes.

Congress first restrained the transmission of unsolicited faxes by enacting the Telephone Consumer Protection Act of 1991 (TCPA). The Federal Communications Commission, however, found that an “established business relationship” between the sender and recipient implied permission to send a fax. The FCC defined “established business relationship” broadly to encompass consumers who had inquired about products or services as well as actual purchasers.

The regulatory pot began to boil in 2003 when the FCC approved revised rules that would have eliminated the established business relationship exception to the unsolicited fax ban. The FCC decided that marketers would have to obtain express written permission prior to sending unsolicited faxes – even to their long term customers.

Shouts from the business community prompted the FCC to stay the new rules through June 30, 2005. On the eve of that deadline, Congress amended the TCPA by passing the Junk Fax Protection Act of 2005 (JFPA). The JFPA recognized the established business relationship exception as a statutory safe harbor and thus vaporized the FCC's proposed rule.

While Congress was moving to reinstate the established business relationship exception, the California legislature marched in the opposite direction. About three months after President Bush signed the JFPA, Governor Schwarzenegger signed Senate Bill 833. The California law, which added Section 17538.43 to the Business and Professions Code, prohibited the transmission of unsolicited faxes without the recipient's “prior express invitation or permission.” It purported to apply to any faxes sent to, from, or within the state, with a narrow exception for faxes sent by or on behalf of nonprofit professional or trade associations.

Not surprisingly, the U.S. Chamber of Commerce and a fax marketing firm challenged SB 833 in federal court. In February 2006, the court ruled that SB 833 improperly “eliminates the established business relationship exception that Congress expressly codified in the JFPA and nullifies Congress' decision that unsolicited facsimile advertisements be governed by an ‘opt-out' rather than an ‘opt-in' scheme.” See Chamber of Commerce of the United States v. Lockyer, 2006 U.S. Dist. LEXIS 8324 (E.D. Cal., Feb. 27, 2006).

While the court invalidated SB 833 with respect to interstate fax transmission, it emphasized that “the protections afforded California consumers for intrastate facsimile transmissions remain inviolate.” Thus, the court limited the reach of SB 833 to faxes within the Golden State.

On April 5, 2006, the FCC filled in the picture by adopting new rules to implement the JFPA. The rules will take effect 90 days after publication in the Federal Register.

Under the new regulatory regime, the first question for those who market via fax is whether their messages fall within the ambit of the restrictions. An “unsolicited advertisement” under the amended federal definition is “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without the person's prior express invitation or permission, in writing or otherwise.” Messages that facilitate, complete or confirm a commercial transaction that the recipient has already agreed to enter into with the sender are not deemed “advertisements.” Thus, while a fax promoting a cruise is a covered communication, an itinerary directed to someone who has purchased the trip is exempt.

Nonprofit organizations, such as trade groups, are not immune under federal law. Rather, the analysis turns on the nature of the communication. A trade group's newsletter sent via fax is not an “unsolicited advertisement” if it only conveys information such as industry news, but crosses the line into regulated territory if it substantially promotes goods or services. Messages that seek political or charitable contributions, as opposed to promoting commercial products or services, are exempt.

Interstate fax messages that constitute “unsolicited advertisements” must fall within the established business relationship exception that is the key feature of the JFPA. To qualify, the sender must have a prior or existing relationship with the recipient based on “an inquiry, application, purchase or transaction” by the recipient involving the products or services offered by the sender. “Established business relationship” is something of a misnomer in that it continues, indefinitely, until the recipient requests the discontinuance of faxes.

An established business relationship alone does not entitle a marketer to pepper a prospect with messages. Rather, the recipient voluntarily must provide a fax number to the sender, either by directly supplying the number or by listing the number in a website or advertisement.

The JFPA and associated federal rules require marketers to facilitate opt-out requests. On the first page of the ad, the sender must include a clear and conspicuous notice that explains how the recipient may stop future faxes. The sender must provide a cost-free mechanism for opt-outs – either a website address, an e-mail address, a local phone number, a toll-free phone number, or a toll-free fax number. Opt-out requests must be honored within 30 days, even when the sender and recipient have ongoing business.

Congress did not tinker with the enforcement provisions of the TCPA. Hence, as before, the federal statute and regulations may be enforced by federal or state authorities in federal court, and fax recipients also have a private right of action in state court.

Thus, a California recipient of a federally-unlawful fax may bring an individual or class action in Superior Court. Kaufman v. ACS Systems, Inc., 110 Cal.App.4th 886 (2003). Such a plaintiff may seek an injunction and either actual or statutory damages. The statutory damages are $500 per improper fax, and the court may impose treble damages for willful or knowing violations.

SB 833, which took effect on January 1, 2006, creates a similar private right of action for violations of the new state law. Hence, even when there is a long term business relationship between sender and recipient, an unsolicited ad faxed within California allows the recipient to sue for statutory damages ranging from $500 to $1,500.

The upshot is that California-based businesses, large and small, should stop and scrutinize their use of fax machines. Before pitching a product or service to any prospective or existing customer, they should have a written record that the recipient expressly invited or permitted fax communications, and any such record should be kept for at least four years.

Alternatively, California-based businesses might consider transmitting their promotional messages to Californians from locations outside the state. Such interstate faxes should fall within the established business relationship exception under federal law.

In the broader context of marketing regulation, the federal restraints on faxes are tougher than those applicable to e-mail and telemarketing in that only fax marketers must have pre-existing relationships with their prospects. Fax marketers in California, however, now must be mindful of the state's more stringent mandate.

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