When Chevron Meets the Hobbs Act: PDR Network v. Carlton & Harris Chiropractic, Inc. (Part III)

by Bernard Bell — Thursday, Nov. 29, 2018

The worse day in a man’s life is when he sits down and begins thinking about how he can get something for nothing.  — Thomas Jefferson

This concluding post of my three-part series regarding PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., Dkt. No. 17-1705 (U.S. Sup. Ct.), addresses the merits question the case presents, namely whether the PDR Network’s fax communication was an “advertisement” and thus banned by the Telephone Communications Privacy Act of 1991?  As explained below, the district court’s conception of “advertisement” was too narrow.  Moreover, even under that narrow definition, PDR Network’s “commercial aim” in sending the fax sufficed to make the fax an “advertisement.”

PDR Network sent Carlton & Harris Chiropractic a fax offering a free subscription to the electronic version of the Physician Desk Reference, touting the e-book, and indirectly, the print version.  The Telephone Consumer Protection Act of 1991 (the “TCPA”), Pub. L. 102-243, 105 Stat. 2394, codified at 47 U.S.C. § 227, as amended by the Junk Fax Prevention Act of 2005, Pub. L. No. 109-21, 119 Stat. 359, generally prohibits unsolicited fax advertisements, with a few limited exceptions.  The term “advertisement” should include offers of free goods and services.  While the TCPA’s ban on faxed advertisements may limit fraud, its primary purpose is quite different, namely protecting individuals and businesses from the cost and nuisance of unwanted faxes.  In terms of such harms, unsolicited faxes have the same negative impact whether they offer goods or services for free or for a price.  Because the Federal Communications Commission (“FCC”) reached the same conclusion, Chevron or Skidmore deference only enhance the case for such a broad construction of the term “advertisement.”

The Statutory Text

The TCPA itself defines the term “unsolicited advertisement” to means “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise,” 47 U.S.C. §227(a)(5).  In common parlance, to “advertise” is “to make public announcement of; especially to proclaim the qualities or advantages of (a product or business) so as to increase sales.” THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 19 (William Morris, ed. 1969). This dictionary definition clearly encompasses more than announcements for purposes of increasing sales.  “Advertising” is “the action of attracting public attention to a product or business.”  Id.  Nothing in the definition indicates that the product must be one that is sold, rather than provided without cost, to the audience.  Similarly, “advertisement” means “a notice to attract public attention or patronage.” Id; accord, Oxford English Dictionary On-line (“[a] notice or announcement in a public medium promoting a product, service, or event or publicizing a job vacancy”).

However, the phrase “commercial availability or quality” narrows the scope of the TCPA’s definition of “unsolicited advertisement” to include only messages that discuss the “commercial availability or quality” of some property, good, or service.  The term “commercial availability” might appear to limit the TCPA’s focus to advertisements regarding the purchase or sale of some property, good, or service.  “Commercial” is defined as “of, pertaining to, or engaged” in commerce.  Id. at 267.  “Commerce,” in turn, is defined as “the buying and selling of goods, particularly on a large scale.”  Id; accord, Oxford English Dictionary On-line (“[t]he activity of buying and selling, especially on a large scale”).  Thus this would seem to require that the advertising discuss “property, goods, or services” available for purchase.

However, the definition of advertising is in the disjunctive specifying messages regarding “the commercial availability or quality” of property, goods, or services.  That formulation evidences a congressional desire to encompass more than offers to buy and sell, i.e., messages regarding the commercial availability of goods and services; messages touting the quality of goods and services were sufficient.  Thus the statutory text supports the FCC’s view that “advertisement” encompasses offers of free goods.  See In Re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 21 FCC Rcd. 3787, ¶¶52-53 (April 6, 2005) (“TCPA April 6, 2006 Report and Order”).  In any event, as discussed below, other considerations support defining “advertising” in a way that is not limited to messages regarding the availability of goods and service offered for sale.

The History of the TCPA and the Junk Fax Prevention Act

The history of the TCPA, the FCC’s implementation of the statute, and the Junk Fax Prevention Act provide helpful context in grappling with the interpretive question raised by PDR Network.  TCPA itself includes congressional findings outlining the need for the legislation. TCPA, supra, §2.  The findings related mostly to unsolicited telephone calls to residential numbers, id. at §2(6)-2(12), the focus of Congress’ attention.  But Congress also expressed concern for business entities, which regarded such calls as “nuisance[s],” “invasion[s] of privacy,” and an “interfere[nce] with interstate commerce.”  Id. at §2(14).

The FCC promulgated initial regulations implementing the TCPA in 1992.  FCC, Notice of Final Rule, Telephone Communications Protection Act, 57 FED. REG.  48333 (October 23, 1992)(adding 47 CFR § 64.1200); In Re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 FCC Rcd. 8752 (October 16, 1992) (“TCPA October 16, 1992 Report and Order”).  Despite its view that the TCPA left the Commission “without discretion to create exemptions from or limit the effects of the prohibition” on unsolicited facsimile advertisements, the FCC concluded that the existence of an established business relationship between the fax sender and fax recipient could be considered an implicit grant of permission to send an otherwise unsolicited advertisement.  Id. at ¶54, n.87; see, TCPA April 6, 2006 Report and Order at ¶3.

In 2002, the FCC undertook to revise its rules implementing the TCPA.  In doing so, the FCC analyzed the TCPA’s legislative history.  It determined that ensuring that the public was not forced to bear the costs of unwanted advertising was one of Congress’s primary purpose in passing the Act.  Sen. Rpt. 109-76, at 3; Report & Order, In Re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014, ¶190 (July 3, 2003) (“TCPA July 3, 2003 Report and Order”).

The FCC discerned a pattern in Congress’ treatment of various telemarketing practices.  Unsolicited phone calls to land lines were permitted, but telephone subscribers could have their names added to a do-not-call list.  Sen. Rpt. 109-76, at 3; TCPA July 3, 2003 Report and Order, at ¶190.  Other practices, like unsolicited faxes and calls to wireless phone numbers were broadly prohibited.  Sen. Rpt. 109-76, at 3; In re Rules and Regulations, 18 FCC Rcd. 14014 ¶190.  The FCC explained that those ‘‘practices were treated differently because they impose[d] costs on consumers.’’   Sen. Rpt. 109-76, at 3; TCPA July 3, 2003 Report and Order, at ¶190.  In particular, recipients of faxes “assume the cost of the paper used, the cost associated with the use of the facsimile machine, and the costs associated with the time spent receiving a facsimile advertisement during which the machine cannot be used by its owner to send or receive other facsimile transmissions.”  Id. at ¶189; Sen. Rpt. 109-76, at 3.  For such cost-imposing practices, requiring consumers to “opt-out” by placing their names on a do-not-call or do-not-fax list was inappropriate, because it might require the recipient to bear the cost of the initial fax transmission from an entity.  Id. at 4; TCPA July 3, 2003 Report and Order, at ¶190.  In addition, such an approach would “inappropriately place the burden on the recipient to contact the sender and request inclusion on its do-not-fax list.”  Sen. Rpt. 109-76, at 4; TCPA July 3, 2003 Report and Order, at ¶190.

As a result of its review of its 1992 implementation rules, the FCC reversed its earlier view and concluded that the presence of an existing business relationship was not, by itself, an implicit invitation to send faxed advertisements. TCPA July 3, 2003 Report and Order, at ¶189.   The Junk Fax Prevention Act was adopted in response to the FCC’s 2003 opinion and order, particularly it reversal of course regarding “existing business relationships.”  Sen. Rpt. 109-76, at 4-6.  Though Act was designed to provide narrow exceptions to the TCPA’s absolute ban on unsolicited fax advertisements, Sen. Rpt. 109-76, at 1, 6-7, the crucial Senate Committee report cited with approval the FCC’s analysis of the intent underlying the TCPA’s basic framework, id. at 3-4.  The Senate Committee wanted to require the FCC to retain its initial “existing business relationship” doctrine, in part due to the reliance that had built up over the ten years since the FCC’s “existing business relationship” doctrine had been in place.  Id. at 6.  The Committee also wanted to provide relief to trade associations and other non-profits that have hundreds of thousands of members, organizations like the National Association of Wholesaler‑Distributors and the National Association of Realtors.  Id.  The Committee perceived such organizations at risk of being required to collect signatures from each of their members just to send an unsolicited fax advertisement to their memberships.  Id.[1]

All this supports a broader definition of “advertisement” than resort to the dictionary definitions of “commercial” and “commerce” suggests — any faxed offer, even one that offers something for nothing, imposes costs upon the recipient.

But in PDR Network, the District Judge took a very limited view of “advertising” or even what it means to “promote” the product.  Carlton & Harris Chiropractic, Inc. v. PDR Network, LLC, 2016 WL 5799301, *2, *4 (S.D. W. Va. 2016).  The interpretation of these terms is surely less clear cut than the District Judge suggested.  The difficulty courts have encountered in defining “commercial speech” for First Amendment purposes is instructive.

The Difficulty in Defining “Commercial Speech” in the First Amendment Context

Initially, at least, the Supreme Court defined “commercial speech” in very intuitive terms.  In Pittsburgh Press v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 385 (1973), the Court described commercial speech as any message that does “no more than propose a commercial transaction.”  This definition seems quite in line with the District Judge’s conception of advertising in PDR Network.  But commentators have noted the difficulties of defining commercial speech, and the Pittsburgh Press definition’s inadequacy.  See, e.g., Alex Kozinski & Stuart Banner, Who’s Afraid of Commercial Speech? 76 VA. L. REV. 627, 639-40 (1990); Robert Post, The Constitutional Status of Commercial Speech, 48 UCLA L. Rev. 1, 6-7 (2000)(“the impossibility of specifying the parameters that define the category of commercial speech has haunted its jurisprudence and scholarship”).  The Court’s grant of certiorari in Nike v. Kaskey, 539 U.S. 654 (2003), fifteen years ago promised to provide an occasion for it to refine its definition of commercial speech,  but ultimately, the Court dismissed the petition as improvidently granted.  Id. at 655.

Kozinski and Banner persuasively argue that the Pittsburgh Press definition of commercial speech is not geared to what advertising had become in the 20th Century.  Who’s Afraid of Commercial Speech?, 76 VA. L. REV. at 635.  It is even more outmoded in light of the 21st Century concept of “branding.”  See, Carlton & Harris Chiropractic v. PDR Network, 883 F.3d 459, 468 (2018)(the District Judge “takes too narrow a view of the concepts of commercial activity and promotion, and ignores the reality of many modern business models”).

Kozinski and Banner use a television ad commercially popular at the time of their article, but no doubt rarely remembered now to illustrate the problem.  Id. at 639-41.  It was a Diet Pepsi ad featuring Michael J. Fox.  A female neighbor knocks on his apartment door and asks if he has a Diet Pepsi. He tells her he does, but opens his refrigerator to discover he does not.  He sets off down the fire escape and “through a series of close calls and near mishaps,” but returns to his apartment with a Diet Pepsi.  “Soaking wet and exhausted,” he offers the can to his startled neighbor.  The vignette did not explicitly propose a commercial transaction; indeed it resembled a film short.  Yet, Kozinski and Banner asserted, the ad should obviously be included in any view of “commercial speech.” Id. at 641.

The communication at issue in Nike v. Kaskey presents another scenario in which the Pittsburgh Press definition of “commercial speech” seems inadequate to the task of distinguishing commercial advertisements from other types of advertisements.  In that case, plaintiff, acting as a private attorney general, sued Nike for unfair competition or false advertising in violation of California law for making misleading statements about its labor practices in foreign countries.  Id. at 665 (Breyer, J., dissenting).  Kaskey’s complaint focused on nine documents.  Id. at 665, 672 (Breyer, J., dissenting).  One was a letter Nike sent to university presidents and athletic directors.  Id. at 685-86, Appendix A (Breyer, J., dissenting).  Neither the letter nor the other documents included an offer to sell any Nike product.

The California Supreme Court found the documents, including the letter, to be “commercial speech,” because they “were directed by a commercial speaker to a commercial audience,” and “made representations of fact about the speaker’s own business operations for the purpose of promoting sales of its products.”  Kaskey v. Nike, 27 Cal.4th 939, 946, 45 P.3d 243, 247 (2002).  Though the U.S. Supreme Court dismissed the certiorari petition as improvidently granted, at least two Justices would have found the letter (and the other documents) to be non-commercial speech.  Id. at 676-79 (Breyer, J., dissenting).  Three other Justices asserted that the Court was wise to avoid the issue at the early stage of the litigation because the case raised novel First Amendment questions given that the speech at issue “represent[ed] a blending of commercial speech, noncommercial speech and debate on an issue of public importance.”  539 U.S. 654, 663-665 (Stevens, J. concurring).

Granted in both Nike v. Kaskey and the Diet Pepsi commercial highlighted by Kozinski and Banner, the parties whose advertisement it was at least sold the product or product line mentioned in the communication.

 The Perils of a “Commercial Nexus” Requirement

The District Judge’s requirement that an advertisement have a “commercial aim” has yet another flaw.[2]  The test requires an exploration of the advertiser’s business model.  Using a test turns on an exploration of how the fax benefits the sender commercially may well significantly increase the costs of bringing “junk fax” lawsuits.  As the Fourth Circuit majority noted, such a fact-specific test will likely require the parties to engage in discovery.  Carlton & Harris Chiropractic v. PDR Network, 883 F.3d at 468-69.  Increasing the costs in such a manner drastically reduces the incentives recipients have to enforce the prohibition on junk faxes.

Even Judge Thacker, in his Fourth Circuit dissent, acknowledged this issue, choosing to address it not by accepting a broader definition of advertisement, but by adjusting “junk fax” plaintiffs’ burden at the pleading stage.  Id. at 474 (Thacker, J., dissenting).  But such a solution does not relieve the parties from the necessity of engaging in a potentially costly discovery process, because, as Judge Thacker made clear, the fax sender was free to rebut the pleading stage presumption of an commercial nexus by laying out the facts of its business.  Id.

The “Commercial Aim” of the PDR Network 

But the PDR Network’s unsolicited fax at issue in PDR Network v. Carlton & Harris Chiropractic presents a relatively easy case, even if one views the TCPA as encompassing only faxes that have a “commercial aim.”  Though PDR Network apparently does not selling the e-edition of the Physician Desk Reference, the printed version of the Physician Desk Reference is offered for sale (see here).  Using the e-edition might well lead a practice, or a medical professional affiliated with it, to subscribe to the printed version of the book.

Moreover, even if the PDR Network did not sell the printed version of the Physician Desk Reference, the fax at issue would still have a “commercial aim.”  PDR Network charges pharmaceutical companies for inclusion in its publication.  Petition for Writ of Certiorari, PDR Network v. Carlton & Harris Chiropractic, Inc., Dkt No. 17-1705, at 7 (June 21, 2018) (“PDR receives fees from pharmaceutical manufacturers for including their drugs in the Physicians’ Desk Reference”). The PDR Network’s “commercial aim” is enlarging the Physician Desk Reference’s subscriber base. By doing so it boosts the value to pharmaceutical companies of having their products included in the book, allowing PDR Network to charge pharmaceutical companies more for inclusion of their products.  This is similar to the standard practice of website operators, which often allow free access to their website, but charge advertisers for placing ads on the site.  In 1991, when Congress initially adopted the TCPA, the Internet was in its infancy.  Thus it is hardly surprising that Congress failed to focus on the Internet or anticipate website operators’ novel business models when formulating the definition of “unsolicited advertising” for purposes of the TCPA.

There is no reason that use of unsolicited faxes offering free subscriptions to expand a subscriber base for the purposes of increasing charges to advertisers should fall outside a ban on unsolicited advertisements.  See Carlton & Harris Chiropractic v. PDR Network, 883 F.3d at 468 (hypothesizing this scenario).  The PDR Networks’ practice certainly falls outside the paradigms Congress envisioned in enacting the Junk Fax Prevention Act, namely associations transmitting faxes to their members and business entities faxing those with which they had an existing business relationship.  As the FCC quite reasonably concluded, with Congress’ full knowledge, the harm from unsolicited fax advertisements was the cost of unwanted faxes promoting commercial products, not being charged for the items promoted.  Offers of free materials that use of printer ink and occupy the fax machine are no less intrusive than offers of products for a fee.  Indeed, under PDR Network’s “commercial nexus” theory, a firm could send a flyer with product information and pricing by unsolicited fax, so long as it did not sell any of the products listed and merely charged the companies for inclusion of their products in the flyer.

Conclusion

The statutory text of the TCPA and the circumstances surrounding the enactment of the Junk Fax Prevention Act suggest that Congress did not want to narrowly circumscribe the term “unsolicited advertisement.”  The circumstances surrounding enactment of the Junk Fax Prevention Act also suggests congressional reaffirmance the FCC’s general conception of the TCPA’s prohibitions.

In short, district courts, in “junk fax: cases must honor and apply regulations that have not been successfully challenged in the manner prescribed by the Hobbs Act.  However, because the PDR Network’s challenge appears to be non-binding guidance, the Hobbs Act does not apply.  But PDR Network should ultimately lose the case on the merits.  The Supreme Court should reject the requirement of a “commercial nexus” advanced by the petitioner and the district court.

* * * * * * *

[1] In its 2003 report and order, the FCC decided that an entity’s listing in a trade organization’s directory did not constitute prior express consent to receiving fax advertisements from third parties. TCPA July 3, 2003 Report and Order, at ¶192-93.  This created the possibility that the trade association itself might violate the prohibition of unsolicited fax advertisement by faxes sent to its members.

[2] The District Judge used the terms “commercial aim” or “commercial element.”  But the Fourth Circuit in its decision and PDR Network, in its certiorari petition used the term “commercial nexus.”  I use the term interchangeably.

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