US sport and consumer protection laws - what sports teams need to consider when marketing to fans - Episode 26

In this interview Marc Roth, a partner at the US law firm Manatt, Phelps & Phillips explains the risks associated to US sports teams that are not compliant with the  TCPA, which can result in significant fines. Earlier this year, several sports teams were hit with lawsuits under the TCPA including the Buffalo Bills who paid $3 million in a class action settlement after the team was accused of sending more text message alerts than outlined in its terms of service.

Marc also gives his opinion on the potential new regulations governing the use of native advertising and the future changes in privacy laws that may affect how sports businesses manage their customer data.

Marc Roth, is the co-chair of the Telephone Consumer Protection Act (TCPA) regulations Compliance and Class Action practice at the US law firm Manatt, Phelps & Phillips.

A special thank you to Adam Beach for transcribing the interview.

Marc Roth – TPCA Interview Transcript

SC: Marc, thanks for joining me today. Could you tell us about the Telephone Communications Act and when it was introduced?

MR: It was first introduced in 1991 with the primary goal to protect consumers’ privacy in their home via their telephone and also the costs associated with receiving calls to their cell phones, because at that time those consumers were paying for calls made to and from their mobile phones. Text messaging wasn’t really in existence at that time so it wasn’t that much of a concern, but the Congress recognised that consumers were getting pre-recorded messages in their homes and were being charged for calls to their cell phones, and that prompted them to pass the TCPA in 1991.

SC: In the last year, am I right that there have been some new regulations regarding this?

MR: That’s right. In last October, October 16^th 2013, new regulations were promulgated by the Federal Communications Commission, which is the primary federal agency charged with enforcing the TCPA. The new rules came into play. Keep in mind that the rules were actually developed a year earlier, in February 2012, but the FCC gave industry 18 months to comply with the new rules and to prepare for compliance.

The new rules kind of went unnoticed by many companies in many industries until the dreaded day in October neared, and then everyone’s ears perked up and realised that ‘Oh my god, this is a game-changer’. So what changed? The rules for obtaining consent from consumers to send text messages or to place calls to people on cell phones or to place pre-recorded calls to landlines changed. Previously, if a consumer gave their cell phone number, that was deemed permission to call that person on that phone number or to send them a text message. That changed because there were other rules enforced by a different federal agency that said no, that’s not enough, you have to get expressed written consent, which is beyond just the mere provision of a phone number.

Now you have to get a written agreement from the consumer for marketing messages. If it is a non-marketing message, the consumer giving their phone number is sufficient; that satisfies the law. For example, to get reminders about prescriptions or healthcare messages or things like that. But now, if you want to send them a text message with a marketing or promotional message in it, it has to comply with certain language requirements in the new rules that makes it much more difficult for companies to obtain from consumers. The worst part is that companies that spend a lot of money, time and resources developing their databases to send consumers marketing messages by text message, were not grandfathered in. As of October 16^th 2013, all consents that were obtained prior to that date were effectively dead. They could not be used, or if they did, and the company wanted to risk a lawsuit under the law – that is an approach that some companies took as well. But for the most part, with the rule change and the heightened sense of consent required, many companies were left with effectively dead customer lists for communicating with consumers. The downside for this law if you violate the TCPA, is uncapped damages of $500 per violation – that’s per text message – for a negligent texting or calling a consumer, or $1500 per violation for a knowing and wilful violation, which most plaintiffs allege. The risks are very very high under this statute, and so the change in the rules really caused a lot of confusion and issues for many in the industry.

SC: What form does the written consent have to take?

MR: The written consent has to be a written agreement, which could be done electronically, so it could be done online. It doesn’t have to be paper. When we talk about written, under the E-Sign Act, which is the Electronic Signatures Act, that was implemented by Congress over a decade ago, that gives equal dignity to an electronic contract as a written contract. It can be done online with a click, for example. It can also be done through what’s called an IVR [Interactive Voice Response] system. If someone calls up a phone number and the disclosure says ‘do you want to receive text messages, please press your number and then press pound or press some other button that indicates your signature.’ That would also satisfy the law. What is difficult to address, and we really have not seen a perfect solution, is the traditional call to action to consumers saying text yes or coupon, or something, to a short code of five numbers. Then, in the old model, by merely doing that, the consumer is effectively opted-in to receive marketing messages. Again that is express consent but not written consent. That satisfied the old rules. The new rules that say express written consent means that the agreement has to come from the consumer. Just by texting a short code, like the word ‘yes’, that’s not sufficient. In addition, and which is most confusing, is the disclosure in the consumer agreement, also has to have the words ‘I agree to receive automated messages or messages delivered by an auto dialler’ which right now might be confusing to a consumer because they don’t know what an auto dialler is. And when you are getting a text message, you don’t think you’re getting a phone call. But under the US law, a text message is a phone call. Secondly, you also have to disclose, and these are the exact words in the statute, that ‘my agreement to receive messages is not a condition of making a purchase.’ That’s very confusing in a situation, for example, in an in-stadium promotion, where you want to text something to see your message up on the big board or to guess the next play or something like that and then the team will start sending you coupons or discounts at the store. But there is no purchase involved in merely texting. It’s confusing to a consumer who might think ‘why would I do this because they tell me there is no purchase but why would I even worry about that, because I know there is no purchase?’ It may deter consumers from doing that. In addition to the logistical issues of having certain words in the consumer agreement and having that done, it is also confusing to consumers. The new rules really present a really big problem to the sports industry.

SC: So have there been any teams that have fallen foul of these regulations?

MR: Well, interestingly, we have not seen a lot of litigation based on the new rules, which we expected. We thought, with the new rules and the heightened consent requirements, that lawsuits would start flooding the courthouses. They really haven’t for various unknown reasons. Maybe because, at least under US law, with respect to bringing a class action – which is the most popular way to make money in this country, to sue companies – is that you have to prove that all situations by which the consumer provided their consent, or allegedly or did not provide consent, occurred the same way. That is called commonality under the class action universe. Depending on how a company obtains consent, if it is done differently in different scenarios, for example in-stadium or online or on paper, the wording of the consents may be very different. You may not have one very large class, which would be a big payday for a plaintiff’s firm, but you have many different ways of getting consent so that class certification would likely not go forward because there are many different factual patterns to consider for a court. The court may say ‘sorry, plaintiff. There’s not one set of common facts here. There’s many different, so therefore this case is not appropriate for class action.’ We have seen, in cases brought prior to the new rules going into effect, from various football and basketball teams that had in-stadium, in-arena promotions, where people were texting in to see their message on the big scoreboard or to guess who was going to win or do a certain play. The team started texting the consumers on that phone number. The consumers argued ‘I never gave you my consent for those marketing messages’ – one team actually said that you would receive no more than five per week; they started getting ten per week. Obviously the plaintiffs and consumers sued, and a lot of these teams settled just to make it go away. The settlements actually almost benefitted them because it was a credit issued towards merchandise in the team store. From a monetary perspective, they may have lost a little but from a branding perspective it is probably a win.

SC: In these situations, where do you think there has been a breakdown in the internal processes? Is it the lawyers not working with the sales guys or is it the sales guys not working with the lawyers? Is it marketing not communicating with the lawyers or vice versa? Where do you think it has broken down?

MR: In my experience, what I have found is that you have very aggressive marketing people and sales people that get a great idea and run with it. They don’t typically consult with the lawyers. Maybe it is intentional or maybe it is an oversight, who knows? In situations like this, these programs and campaigns are conducted without checking in with legal, they are not apprised of the risks involved. In most scenarios, if you run a campaign or any type of promotion and it goes awry or something isn’t right about it, the worst you may get is some bad PR. You don’t really expect a lawsuit to occur. Unfortunately – given this law – there is a federal law, it has uncapped damages. You can get into $10smillions very easily and there’s no shortage of plaintiffs who are seeking their payday on these cases. I think that these cases are a big wake up call for the marketing and sales folks at various sports teams to start getting legal involved early on, otherwise you are going to have to pay out pretty heavily later on.

SC: What sort of advice would you give to sports executives who may be listening to this or in-house lawyers who are probably thinking, ‘you know what, I should probably get in contact with my sales team and try to make sure that we are compliant with the TCPA.’ What would you say to them?

MR: First of all, obviously, any time there is a promotion that’s going to touch consumers in any way, sales and marketing should consult not just with lawyers but with IT and other stakeholders that may have some interest in the promotion campaign. That should be on the checklist – that’s a 101 basic day one plan – let’s just check with the lawyers, see if there are any issues here. Lawyers in-house should also be aware of this law and the implications of it. In addition to the many other issues on an in-house lawyer’s plate, they need to become familiar with – they may not need to know the exact wording of the law – but at least has to be familiar with the risks involved and with the general requirements for compliance with this law. Once they hear about this type of campaign, a light should go off in their heads saying ‘aha, I have heard this once before, and I need to check with someone on this.’ They need to get in touch with someone who does this for a living to make sure that what the campaign intends to do is compliant with the law.

SC: I was just thinking, what is the effect this would have on consumers who may be marketed to via social networks, maybe using data plans on their mobile networks. How does this affect that?

MR: It is interesting because there is always this looming issue of engaging in social media on your mobile device and using your data for participating. This law, particularly the TCPA, has not really been implicated in those types of scenarios, because that really speaks to a phone call. It doesn’t really speak to data usage. When you are on Facebook, Twitter, Instagram or whatever at a stadium, and you are encouraged to do something that may go into your data plan but it’s not a phone call under the TCPA. There might be other theories under which a plaintiff’s counsel may try to bring a case. For example, asking people to engage in a certain activity that is going to go into their data plan where there is no free wifi and not disclosing that the campaign may require you to use your mobile phone that may eat up your data plan, but we have not really seen that yet.

SC: Is this an area you see growing? With the lawmakers becoming more tech-savvy, is this something – for example, I know the FTC are meeting later on in the year to discuss native advertising – that sports teams are going to have to become a lot more aware of?

MR: Absolutely. Absolutely. Sports teams, particularly as they become more aggressive in their marketing campaigns, both in-arena and outside, not only have to be aware of the laws like the TCPA that have to do with the phone calls and text messages, they need to just be mindful of general advertising principles. The Federal Trade Commission, which is the primary consumer protection agency here, has expressed serious concerns with native advertising – advertising that is made to look like the environment in which the consumer is reading or viewing content, such as watching a video or reading an article that they think is objective but in fact is being paid for (such as sponsored content) by a company. The belief by the consumer is that this is objective editorial, when in fact it is paid for by a company with an agenda. So, the FTC has started cracking down in this area. They held a workshop last year asking for information from industry and from consumer advocates, seeking input from all these various constituents as to what the potential harms are and what the impact is of this type of advertising. What’s interesting, what happened at that workshop was, more questions came out than were answered, because this is a developing area, there is no black and white line. It is all very grey and there are a lot of issues on both sides. What I can say is that publishers have become very sensitive to this issue and are now realising, in the publishing context, that they don’t want to compromise the integrity of their editorial, so many publishers are pushing back on the paid content. With respect to the sports industry, there might be a partnership with, for example, a sports drink with a team. The team may want to have certain advertising or put out certain content that doesn’t maybe identify the sports drink company directly but somehow hints at it or suggests that there is an involvement or sponsorship by that sports drink company. That then may require some disclosure but we haven’t really seen much activity in that area yet.

SC: It is interesting, as broadcasters are relying more heavily on the digital space and relying on their own apps, and the consumption on mobile devices, and they rely heavily on these partnerships with teams, leagues, sponsors. It makes it a much more complex environment for them to operate within. The reason why I asked this is, how they are capturing and harnessing data in order to expand their databases, and when they get these opt-ins. As the technology is moving so quickly, it has made it a blurred landscape and increasingly more difficult to make sure you are in compliance with these changing regulations.

MR: Absolutely. You bring up privacy – right now there is no one general privacy law in the US. It is very sectorial and based on sensitive data. I do foresee in the future, I can’t say when, that there will be some type of federal law that will require not just disclosure of what information we are collecting and how we intend to use it, such as California right now – they do have a law with respect to online collection of information. There’s a movement towards having he consumer understand how their information will be used for purposes other than the purpose for which it was intended. If I give my information for something, for example whether it is in the context of an in-stadium promotion or if I Register for the team loyalty program, will just the team use my name or will the team share it with their sponsors? Will I start getting advertising from, whether in the form of email or direct mail or even phone calls, from automobile companies, or banks, or other companies with whom the team has relationships. That is a very big area that is ripe for issues in the future.

SC: Marc, thank you very much for you insights today. Sadly that is all we have time for this show.  

• Commercial Law Data Protection Databases Marketing National Football League (NFL) Podcast Telephone Consumer Protection Act 1991 (TCPA) United States of America (USA)