FILED
United States Court of Appeals
Tenth Circuit
June 4, 2009
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
SORENSON COMMUNICATIONS, INC.
and GOAMERICA, INC.,
Petitioners,
v. Nos. 08-9503
08-9507
FEDERAL COMMUNICATIONS 08-9545
COMMISSION and UNITED STATES OF 08-9547
AMERICA, 08-9550
Respondents.
________________________________
SORENSON COMMUNICATIONS, INC.
and GOAMERICA, INC.,
Intervenors-Petitioners.
PETITION FOR REVIEW OF AN ORDER FROM
THE FEDERAL COMMUNICATIONS COMMISSION
(Nos. FCC-1:CG 03-123 & FCC-1: FCC 07-186)
Donald B. Verrilli, Jr. * (Ian Heath Gershengorn, ** Michael B. DeSanctis, Ginger
D. Anders and Jonathan F. Olin, with him on the briefs), Jenner & Block LLP,
Washington, D.C., for Intervenor-Petitioner, Sorenson Communications, Inc.
Karl Buch of Chadbourne & Parke LLP, New York, New York (Dana Frix of
Chadbourne & Parke LLP, Washington, D.C., with him on the briefs), for
Intervenor-Petitioner, GoAmerica, Inc.
Jacob Lewis, General Counsel, Federal Communication Commission, Washington,
D.C. (Deborah A. Garza, Acting Assistant Attorney General; James J. O’Connell,
Jr., Deputy Assistant Attorney General; Robert B. Nicholson and Robert J.
Wiggers, Attorneys, United States Department of Justice, Washington D.C.;
Matthew L. Berry, General Counsel; Joseph R. Palmore, Deputy General Counsel;
Daniel M. Armstrong, Associate General Counsel; and C. Grey Pash, Jr., Counsel,
Federal Communications Commission, Washington, D.C., on the briefs), for
Respondents, Federal Communications Commission and the United States of
America.
Before TACHA, MURPHY and TYMKOVICH, Circuit Judges.
MURPHY, Circuit Judge.
I. INTRODUCTION
The Americans with Disabilities Act (“ADA”) mandates that individuals
with hearing or speech disabilities have access to telecommunications relay
services (“TRS”), which are telephone transmission services enabling such
*
Donald B. Verrilli has left the firm of Jenner & Block LLP to enter
government service. He was replaced as principal attorney of record for Sorenson
Communications, Inc., by Ian Heath Gershengorn as of March 4, 2009.
**
Ian Heath Gershengorn has left the firm of Jenner & Block LLP to enter
government service. He was replaced as counsel for Sorenson Communications,
Inc., by Paul M. Smith as of May 21, 2009.
-2-
individuals to communicate in a manner functionally equivalent to how
individuals without disabilities communicate. 47 U.S.C. § 225(a)(3), (b)(1).
Interstate TRS providers are compensated for the costs of providing TRS from a
fund (the “TRS Fund”) governed by the Federal Communications Commission
(“FCC”). 47 C.F.R. § 64.604(c)(5)(iii). In two declaratory rulings, the FCC
articulated three restrictions on TRS providers which petitioners challenge in this
case. First, the FCC prohibited providers from using revenues received from the
TRS Fund to lobby customers. Telecommunications Relay Servs. (2008
Declaratory Ruling), 23 F.C.C.R. 8993, 8998 (2008). Second, it prohibited
providers from using customer data collected in the course of providing TRS for
lobbying or any other purpose except the handling of TRS calls. Id. at 8997;
Telecommunications Relay Servs. (2007 Declaratory Ruling), 22 F.C.C.R. 20140,
20176 (2007). Third, the FCC prohibited providers from engaging in various
marketing practices designed to increase TRS usage. 2008 Declaratory Ruling,
23 F.C.C.R. at 8998-99; 2007 Declaratory Ruling, 22 F.C.C.R. at 20173-75.
Sorenson Communications, Inc. (“Sorenson”) and GoAmerica, Inc.
(“GoAmerica”), two TRS providers, raise statutory and constitutional challenges
to these restrictions. Exercising jurisdiction pursuant to 47 U.S.C. § 402(a) and
28 U.S.C. § 2342(1), this court concludes the restriction on using revenue from
the TRS Fund for lobbying is arbitrary and capricious because the FCC provided
no explanation for why lobbying was singled out for prohibition. This court also
-3-
concludes the restriction on the use of customer data violates the First
Amendment as an impairment of providers’ right to engage in political and
commercial speech without any showing the restriction is narrowly tailored to
advance a significant government interest. GoAmerica’s challenge to the
restriction on abusive marketing practices is dismissed under 47 U.S.C. § 405(a)
because GoAmerica failed to present its argument to the FCC prior to seeking
judicial review.
II. BACKGROUND
The ADA mandates that individuals with hearing or speech disabilities have
access to TRS. 47 U.S.C. § 225(a)(3), (b)(1). Various types of TRS exist. 2007
Declaratory Ruling, 22 F.C.C.R. at 20141 n.2. One type of TRS is Video Relay
Service “(“VRS”), which enables a person with a hearing disability to remotely
communicate with a hearing person by means of a video link and communications
assistant. Id. at 20142 n.9. The VRS customer communicates with the
communications assistant by sign language, and the communications assistant
communicates with the hearing person by voice. See id.; 47 C.F.R.
§ 64.601(a)(26).
TRS customers do not pay the costs associated with the service. 47 U.S.C.
§ 225(d)(1)(D). Providers of traditional telephone voice transmission service are
obligated to make TRS available to persons with hearing and speech disabilities.
Id. § 225(b). The costs associated with interstate and intrastate TRS are
-4-
compensated by way of funds administered by the federal and state governments,
respectively. 1 Id. § 225(d)(3)(B). The TRS Fund is financed by interstate
telecommunications providers on the basis of interstate end-user
telecommunications revenues. 47 C.F.R. § 64.604(c)(5)(iii)(A). TRS providers
are compensated out of the TRS Fund at a rate determined by the FCC.
Id. § 64.604(c)(5)(iii)(E). For VRS, the FCC sets tiered per-minute compensation
rates that vary depending on the size of the provider. 2007 Declaratory Ruling,
22 F.C.C.R. at 20162-63. VRS is compensated at a higher rate than most other
forms of TRS, and the number of people using VRS has increased in recent years.
Id. at 20145. For the 2007-08 Fund year, nearly 75 percent of the TRS Fund was
attributable to VRS. Id.
In 2006, the FCC decided to examine whether it should revise its rate
structure for TRS. Further Notice of Proposed Rulemaking: Telecommunications
Relay Servs., 21 F.C.C.R. 8379, 8380 (2006). In its notice of proposed
rulemaking, the FCC sought “comment on a broad range of issues concerning the
compensation of providers of . . . TRS from the Interstate TRS Fund.” Id. These
included “numerous issues relating to the cost recovery methodology used for
determining the TRS compensation rates paid by the Fund, as well as the scope of
the costs properly compensable under Section 225 and the TRS regime as
1
On an interim basis, providers of intrastate VRS are compensated by the
TRS Fund. Telecommunications Relay Servs. (2007 Declaratory Ruling), 22
F.C.C.R. 20140, 20144 n.15 (2007).
-5-
intended by Congress.” Id. at 8384. The notice also proposed new methodologies
for calculating per-minute compensation rates. Id. at 8385.
In the 2007 Declaratory Ruling, the FCC changed how it calculates per-
minute compensation rates. 2007 Declaratory Ruling, 22 F.C.C.R. at 20176.
Those changes are not at issue in this appeal. In addition to changing the
compensation methodology, the FCC also used the 2007 Declaratory Ruling to
clarify issues regarding improper incentives and marketing practices on the part
of some TRS providers. 2007 Declaratory Ruling, 22 F.C.C.R. at 20173.
Because customers do not pay for the service, the FCC explained, providers could
encourage them to make calls they might not otherwise make. Id. at 20173-74.
The FCC reminded providers of a 2005 Public Notice regarding impermissible
marketing practices. Id. at 20174. It went on to note it was still receiving reports
of VRS providers offering improper incentives to TRS customers, and it
reaffirmed the prohibitions on improper incentives and marketing practices. Id. at
20175.
The FCC also declared that providers “may not use a consumer or call
database to contact TRS users for lobbying or any other purpose.” Id. at 20176.
It explained that using a customer’s profile information to contact the customer
was an improper use of such data, and declared that providers could not contact
customers to inform them about pending TRS compensation issues. Id. The FCC
further declared that providers engaging in improper marketing practices or
-6-
misusing customer information would be ineligible for compensation from the
Fund. Id.
After the 2007 Declaratory Ruling was issued, Sorenson petitioned the FCC
to reconsider the prohibition on using customer data to contact customers “for
lobbying or any other purpose,” arguing the prohibition violated the
Administrative Procedures Act (“APA”) and the First Amendment. See 2008
Declaratory Ruling, 23 F.C.C.R. at 8996. Counsel for Hands On Video Relay
Services, Inc. 2 also submitted three ex parte letters to the FCC. In those letters,
Hands On stated it “supports much of the [2007 Declaratory Ruling], which
addresses certain abusive marketing practices, such as . . . contacts made by
provider representatives urging VRS consumers to make more calls using a
provider’s service.” The letters went on to list statutory and constitutional
concerns with “the portion of the [2007 Declaratory Ruling] which prohibits
providers from contacting for any reason consumers who have registered with a
provider.”
In response to the concerns expressed by VRS providers, the FCC issued
the 2008 Declaratory Ruling for the purposes of clarification. Id. at 8993. In the
2008 Declaratory Ruling, the FCC clarified that the restriction on the use of
customer information “for any . . . purpose” does not prohibit contacts directly
2
Hands On Video Relay Services is a wholly owned subsidiary of
GoAmerica.
-7-
related to the handling of TRS calls. Id. at 8997. As examples, it explained
providers could contact customers to inform them of a service outage, respond to
a call for emergency services, assist in the delivery of emergency services, or
provide technical support for TRS products or services. Id. It also stated
providers could use such data “to comply with a federal statute, a Commission
rule or order, a court order, or other lawful authority.” Id. (quotation omitted).
In the 2008 Declaratory Ruling, the FCC also explained providers were
prohibited from using revenue from the TRS Fund to contact customers and
attempt to persuade them to support the provider’s position on matters pending
before the FCC, since the payments from the Fund are only intended to
compensate providers for the costs of providing TRS. Id. at 8998. Finally, with
respect to impermissible financial incentives and marketing practices, the FCC
clarified that such practices are prohibited regardless of whether the provider uses
customer call data or similar, privately collected information. Id. at 8998-99.
Sorenson and GoAmerica filed petitions seeking judicial review of the
declaratory rulings. Both challenge the prohibition on using TRS revenues to
contact customers for lobbying or advocacy purposes. They both also challenge
the prohibition on using customer data to contact customers for lobbying or any
purpose other than the handling of relay calls. GoAmerica alone challenges the
prohibition on abusive marketing practices. After Sorenson and GoAmerica filed
petitions for review of the declaratory rulings and their challenges were
-8-
consolidated in this court, a panel of this court granted a stay of enforcement of
the challenged portions of the declaratory rulings pending appeal.
III. DISCUSSION
A. Restriction on Use of TRS Revenues for Lobbying or Advocacy Purposes
The various challenges to the FCC’s rulings are premised on both statutory
and constitutional grounds. It is a “fundamental rule of judicial restraint” for
courts, “[p]rior to reaching any constitutional questions, . . . [to] consider
nonconstitutional grounds for decision.” Jean v. Nelson, 472 U.S. 846, 854
(1985) (quotations omitted). This court, therefore, considers petitioners’ statutory
arguments first.
Sorenson argues the restriction on using TRS Funds to lobby customers is
arbitrary, capricious, or contrary to law in violation of the APA, 5 U.S.C.
§ 706(2)(A). The FCC asserts the restriction is a logical action taken to
counteract a specific problem. An agency action is arbitrary and capricious under
the APA if, inter alia, the agency fails to “examine the relevant data and
articulate a satisfactory explanation for its action including a rational connection
between the facts found and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S.
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quotation omitted).
The same standard of review applies to both initial policy decisions and
subsequent changes in policy. F.C.C. v. Fox Television Stations, Inc., 129 S.Ct.
1800, 1810-11(2009). Review under the arbitrary and capricious standard is
-9-
narrow in scope, but is still a “probing, in-depth review.” Qwest Commc’ns Int’l,
Inc. v. F.C.C., 398 F.3d 1222, 1229 (10th Cir. 2005) (quotation omitted). An
agency’s action is entitled to a presumption of validity, and the burden is upon the
petitioner to establish the action is arbitrary or capricious. Citizens’ Comm. to
Save Our Canyons v. Krueger, 513 F.3d 1169, 1176 (10th Cir. 2008). The court
must rely upon the reasoning set forth in the administrative record and disregard
post hoc rationalizations of counsel. Olenhouse v. Commodity Credit Corp., 42
F.3d 1560, 1580 (10th Cir. 1994).
In the 2008 Declaratory Ruling, the FCC explained providers were not
permitted to use revenues from the TRS Fund for “lobbying or advocacy
activities” directed at customers because it found “[e]vidence in the record [] that
at least one service provider has bombarded deaf persons with material seeking to
persuade them to support the provider’s position on matters pending before the
FCC.” 3 2008 Declaratory Ruling, 23 F.C.C.R. at 8998 (footnote omitted).
According to the FCC, “using revenue from the TRS Fund . . . to engage in that
kind of advocacy is inconsistent with the purpose of the TRS Fund.” Id. The
FCC went on to state that “[t]he TRS Fund is designed to ensure that persons with
hearing and speech disabilities have access to the telephone system. It was not
3
Although the 2008 Declaratory Ruling referred to the bombardment of
customers with lobbying materials, the FCC has not attempted to defend the
restriction on lobbying users under a consumer protection rationale. This court,
therefore, expresses no opinion on whether such a rationale could support the
restriction.
-10-
intended to finance lobbying by providers directed at end users. The Commission
is under no obligation to fund such activities out of the public fisc.” Id.
(quotation omitted). The rationale for the restriction, therefore, was that lobbying
end users was not an activity the TRS Fund was intended to compensate, and
therefore monies from the TRS Fund were not permitted to be used for that
purpose.
The FCC does not reimburse VRS providers for actual costs. Instead it
compensates them based upon a tiered price cap formula. 2007 Declaratory
Ruling, 22 F.C.C.R. at 20160-63. From provider data of expected costs and levels
of usage, the FCC sets a per-minute compensation rate for providers. Id. One
rationale for this approach is to give providers an incentive to innovate and
reduce costs. See id. at 20162. If a provider can deliver VRS at an actual cost
lower than the FCC’s estimated cost, it retains the difference. The FCC has noted
that in prior years estimated costs generally exceeded actual costs. Id. at 20161.
Under this compensation scheme that allows VRS providers to retain
payments in excess of actual costs, the FCC singled out lobbying as the one
expenditure for which TRS Fund proceeds could not be used. The interdiction of
the use of payments from the TRS fund for lobbying was premised on the Fund’s
limited design “to ensure that persons with hearing and speech disabilities have
access to the telephone system.” 2008 Declaratory Order, 23 F.C.C.R. at 8998.
-11-
The FCC’s justification is inconsistent with the logic of a price cap-based
compensation system. The FCC has chosen to reward efficient providers by
allowing them to retain the savings generated by providing TRS at a low cost. It
does this by compensating providers regardless of their actual costs in providing
TRS. This reward mechanism is only effective if providers are permitted to
decide how to spend those savings. Regardless of the validity of the FCC’s
concern regarding the purpose of the TRS Fund, it made no attempt to explain
how restricting the use of revenues from the TRS Fund is consistent with its
choice of a price cap scheme which itself seeks to reward efficiency and increase
market access by allowing providers to retain cost savings. 4
Under the FCC’s broad rationale, any expenditure apart from the actual
cost of providing TRS is inconsistent with the purpose of the Fund. Lobbying
expenditures, however, are the only expenditures prohibited. It is true the FCC is
not required to address all problems “in one fell swoop,” and may focus on
problems depending upon their acuteness. Nat’l Ass’n of Broadcasters v. F.C.C.,
740 F.2d 1190, 1207 (D.C. Cir. 1984). Nonetheless, the FCC must still articulate
“a satisfactory explanation for its action.” Motor Vehicle Mfrs. Assn., 463 U.S. at
4
This court need not decide whether the FCC may, under any
circumstances, dictate the use of TRS revenues under a price-cap-based
compensation scheme. If it is to do so, however, it must provide a satisfactory
explanation for its action. Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983).
-12-
43. The FCC made no attempt to explain why lobbying expenditures were
deserving of prohibition while all other uses of Fund revenues were not.
Because the FCC’s chosen cost recovery system allows providers to spend
revenues from the TRS Fund however they choose, the FCC inadequately
explained its restriction on the grounds that lobbying expenditures are
inconsistent with the purpose of the TRS Fund. 2008 Declaratory Ruling, 23
F.C.C.R. at 8998. The FCC further failed to provide any reason why lobbying
expenses are deserving of prohibition when all other business expenditures are
permissible. Absent these justifications, the prohibition on lobbying expenditures
is arbitrary and capricious in violation of 5 U.S.C. § 706(2)(A). The 2008
Declaratory Ruling is hereby REMANDED to the FCC for further proceedings
consistent with this opinion. Because the restriction is unlawful under the APA,
this court does not consider the constitutional challenge.
B. Restriction on Use of Customer Data
1. Notice and Comment Challenge
GoAmerica contends the restriction on the use of customer data constitutes
a legislative rule and, as such, was improperly issued without notice and
comment. The FCC argues the restriction is an interpretative rule which does not
require notice and comment. 5 See 5 U.S.C. § 553(b)(A). Under the APA,
5
The FCC does not assert it complied with notice and comment procedures,
so if the restriction is a legislative rule, it was improperly issued.
-13-
legislative rules can be issued only following notice and comment procedures.
Ballesteros v. Ashcroft, 452 F.3d 1153, 1158 (10th Cir. 2006), aff’d in relevant
part on reh’g, 482 F.3d 1205, 1205 (10th Cir. 2007). A rule is legislative when it
“has the force of law, and creates new law or imposes new rights or duties.”
F.D.I.C. v. Schuchmann, 235 F.3d 1217, 1222 (10th Cir. 2000) (quotation
omitted). Interpretative rules, by contrast, “advise the public of the agency’s
construction of the statutes and rules which it administers.” Shalala v. Guernsey
Mem. Hosp., 514 U.S. 87, 99 (1995) (quotation omitted). The agency’s own label
for its action is not dispositive. Truckers United for Safety v. Fed. Highway
Admin., 139 F.3d 934, 939 (D.C. Cir. 1998).
In support of its argument that the restriction on the use of consumer data is
an interpretative rule, the FCC points to a prior order (the “2000 Order”) where it
stated, “[TRS customer] data may not be used for any purpose other than the
provision of TRS.” Telecommunications Relay Servs. (2000 Order), 15 F.C.C.R.
5140, 5175 (2000). This was codified as a regulation stating, “[TRS customer]
data may not be used for any purpose other than to connect the TRS user with the
called parties desired by the TRS user.” 47 C.F.R.§ 64.604(c)(7). The FCC
argues the 2000 Order and the regulation created the restriction on the use of
customer data, and the Declaratory Rulings at issue in this case serve only to
remind regulated entities of this obligation. Therefore, the FCC argues, the
-14-
restriction on the use of customer data was an interpretative rule, not subject to
the APA’s notice and comment requirements.
GoAmerica argues the 2000 Order concerned an entirely different issue and
context. The relevant portion of the 2000 Order concerned the transfer of
customer data during changeovers between providers. 2000 Order, 15 F.C.C.R. at
5173. In order to minimize disruptions in TRS, outgoing providers were ordered
to give customer data to incoming providers. Id. at 5175. To protect the privacy
expectations of customers, however, the FCC also prohibited providers from using
customer profile information for any purpose other than to connect TRS calls. Id.
According to GoAmerica, the restriction on the use of customer information
applies in the narrow context when providers are replaced without the knowledge
and consent of customers. The FCC’s use of this restriction in the current context
is entirely different, GoAmerica argues, and the FCC has conceded the new
restrictions were not motivated by privacy concerns. Because the restriction
arises in a new context and is meant to achieve a different purpose from the
restriction in the 2000 Order, GoAmerica contends it constitutes a new rule for
which notice and comment were required.
The regulation at 47 C.F.R. § 64.604(C)(7) restricting the use of customer
data came about in the context of transfers between outgoing and incoming
providers, but the regulation unambiguously prohibits the use of customer data
except to connect TRS calls. The declaratory rulings at issue in this case did not
-15-
create any new duties with respect to customer data, but merely informed
providers of the FCC’s interpretation of the existing regulation. As a
consequence, the restriction contained in the declaratory rulings was an
interpretative rule, and the FCC was not required to comply with notice and
comment procedures.
2. Arbitrary and Capricious Challenge
Sorenson and GoAmerica both argue the restriction on the use of customer
data was arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law in violation of 5 U.S.C. § 706(2)(A). An agency must
provide a rational explanation when it departs from an existing regulation or
position. Utahns for Better Transp. v. U.S. Dept. of Transp., 305 F.3d 1152, 1165
(10th Cir. 2002). Sorenson and GoAmerica argue the prohibition on using
customer data to contact customers runs directly contrary to prior and ongoing
FCC requests for providers to engage in outreach efforts to customers.
GoAmerica also argues the prohibition is contrary to the FCC’s prior
interpretation of the statute requiring TRS to be “functionally equivalent” to the
telephone service available to persons without disabilities. 47 U.S.C. § 225(a)(3).
In support of the argument that the prohibition is contrary to prior FCC
positions regarding customer outreach, GoAmerica cites specifically to 47 C.F.R.
§ 64.604(c)(3), which requires telecommunications carriers to make the public
aware of the availability of TRS. Sorenson claims FCC staff recently contacted
-16-
the company asking for help in publicizing the transition to digital television.
The 2008 Declaratory Ruling clarified that providers could use customer data “to
comply with a federal statute, a Commission rule or order, a court order, or other
lawful authority.” 2008 Declaratory Ruling, 23 F.C.C.R. at 8997 (quotation
omitted). Consequently, the restriction does not create competing obligations for
providers or conflict with prior positions of the FCC. If another order or
regulation requires providers to communicate with customers, it prevails. There
is no conflict between the new restriction on the use of customer data and other
FCC orders and regulations.
GoAmerica also argues the prohibition is contrary to the FCC’s prior
interpretation of the ADA’s functional equivalence mandate. The ADA defines
TRS as telephone transmission services that enable persons with disabilities to
use the telephone system in a manner “functionally equivalent” to how it is used
by persons without disabilities. 47 U.S.C. § 225(a)(3). GoAmerica contends the
FCC has interpreted the statutory phrase “functionally equivalent” broadly to
require providers to do such things as retain auxiliary power sources for their
facilities, handle complaints regarding enforcement issues, allow customers to
make TRS calls from public telephones using coins, and provide ten-digit phone
numbers for customers. According to GoAmerica, this broad interpretation of
functional equivalence demonstrates a requirement that TRS customers enjoy the
same relationship with their providers as persons without disabilities. It further
-17-
argues this relationship includes the ability to solicit feedback from TRS
customers. Additionally, if providers are unable to notify customers of pending
changes to TRS being contemplated by the FCC, GoAmerica predicts customers
will be less likely to participate in the proceedings, and the FCC will be more
likely to take action contrary to the ADA.
The FCC has never interpreted the ADA to require TRS customers to have
the same relationship with their telecommunications providers enjoyed by persons
without disabilities. By its very nature the TRS customer-provider relationship is
different from the traditional telecommunications customer-provider relationship
because TRS customers do not pay for the costs associated with the service. 47
U.S.C. § 225(d)(1)(D). The one regulation cited by GoAmerica that even touches
upon the customer-provider relationship is the regulation requiring providers to
handle complaints from customers. 47 C.F.R. § 64.604(c)(1)-(2), (6). This
regulation does not support GoAmerica’s position, however, because it does not
address functional equivalence. Instead, it implements separate, specific statutory
clauses regarding complaints. 47 U.S.C. § 225(e)(2), (g). GoAmerica cites no
other regulation to support its position that functional equivalence requires the
TRS provider-customer relationship to be identical to the traditional telephone
provider-customer relationship. It likewise cites no authority for its argument
that a necessary aspect of this relationship is the ability to solicit feedback
regarding service. The prohibition on the use of customer data therefore does not
-18-
conflict with prior interpretations of the functional equivalence mandate, and
consequently it is not arbitrary or capricious.
GoAmerica also claims functional equivalence may be threatened in the
future if it is unable to warn customers in the event the FCC decides to undertake
proceedings that would diminish functional equivalence. This argument relies
upon a chain of questionable inferences and is purely speculative, as GoAmerica
identifies no pending FCC action that threatens functional equivalence. Such
speculation does not render the prohibition arbitrary, capricious, or contrary to
law.
3. Constitutional Challenge
GoAmerica and Sorenson argue the FCC’s restriction on the use of
customer data is a violation of the First Amendment under U.S. West, Inc. v.
F.C.C., 182 F.3d 1224 (10th Cir. 1999). In U.S. West, this court considered a
challenge to the FCC’s regulations regarding the use of consumer proprietary
network information (“CPNI”) by telecommunications providers. Id. at 1228.
CPNI was defined as information pertaining to “the quantity, technical
configuration, type, destination, and amount of use of a telecommunications
service . . . that is made available to the [telecommunications] carrier by the
customer solely by virtue of the carrier-customer relationship” as well as
information contained in the bills received by customers. Id. at 1228 n.1. The
FCC prohibited telecommunications providers from using CPNI to market
-19-
services to which customers did not already subscribe unless the customer “opted
in” and gave affirmative approval to the provider. Id. at 1230. This court struck
down the restriction as an unconstitutional infringement on commercial speech
because the FCC failed to demonstrate its regulations restricted no more speech
than necessary to safeguard the asserted state interests in protecting privacy and
competition. Id. at 1239.
As a threshold matter this court was required to determine whether the
regulation affected “speech” at all, since on its face it only regulated the use of
data. Id. at 1232. This court concluded the regulation did restrict speech because
it made the speech between providers and customers more difficult by limiting the
ability of providers to target their speech to a particular audience. Id. While
providers could still conceivably contact the intended audience by
indiscriminately broadcasting their speech to a larger audience, the speech was
still impaired because the providers’ preferred channel of communication was
eliminated. Id.
Sorenson and GoAmerica argue U.S. West is directly on point. They
contend the FCC is restricting the ability of providers to use their preferred
channel of communication to contact their intended audience. As a result, they
claim the restriction must withstand First Amendment scrutiny. The FCC
attempts to distinguish U.S. West on the grounds that it is not preventing
providers from contacting customers directly so long as they do not use
-20-
information derived from participation in the government-funded TRS program.
The information at issue in this case, the FCC argues, was gathered as a result of
participation in a government program. Because the providers only have this
information as a result of the service provided to the government, the government
may restrict the use of the information. The FCC argues any effect on speech
resulting from such a restriction is permissible under Rust v. Sullivan, 500 U.S.
173, 193-94 (1991). The FCC does not, however, argue it has a proprietary
interest in the customer data.
As in U.S. West, the restriction on using customer data to lobby customers
affects speech because it limits a preferred channel of communication between the
speaker and the intended audience. U.S. West, 182 F.3d at 1232. Both
commercial and political speech are affected, as the Declaratory Ruling restricts
the use of customer data for “lobbying or any other purpose.” 2007 Declaratory
Ruling, 22 F.C.C.R. at 20176.
The next question is whether the restriction must withstand the applicable
First Amendment tests governing restrictions on political and commercial speech.
The FCC does not argue it owns the customer information merely because it funds
the TRS provided by petitioners. It instead relies entirely upon Rust as authority
for its ability to promulgate the restriction. Rust, however, is not sufficient
support for the government’s position. Rust concerned the government’s ability
to restrict the use of funds distributed under a subsidy program. 500 U.S. at 193.
-21-
Because it is the government’s prerogative to selectively subsidize some activities
and not others, the Supreme Court in Rust held the government could prevent
subsidy recipients from engaging in counseling activities outside a government
program’s intended scope. Id. at 193-94. Here, the government is not directing
the use of subsidies, but is instead restricting how providers can use information
they collect from customers in the course of providing a federally mandated
service. The TRS program, furthermore, is intended to provide a service to
persons with disabilities and is not intended to spread a governmental message
that would be jeopardized by the providers’ use of data to communicate with
customers. Legal Servs. Corp. v. Velazquez, 531 U.S. 533, 541-42 (2001). The
FCC has not cited to any case applying Rust to a restriction on the use of
information gathered in the course of providing a government-mandated service,
and this court has found none. Rust, therefore, does not permit the FCC to evade
First Amendment scrutiny in this context. Absent any other authority
categorically allowing the FCC to restrict the use of this information, this court
analyzes the restriction under the First Amendment tests for restrictions on
commercial and political speech.
Restrictions on commercial speech must meet the test set out in Central
Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447
U.S. 557, 566 (1980). If the restriction cannot meet the Central Hudson test for
commercial speech, it will necessarily be unable to pass the more stringent strict
-22-
scrutiny analysis applicable to restrictions on political speech. Under the Central
Hudson test, three conditions must be met for the restriction to survive: (1) the
government must have “a substantial interest in regulating the speech,” (2) the
regulation must “directly and materially advance[] that interest,” and (3) the
regulation must be “no more extensive than necessary to serve the interest.” U.S.
West, 182 F.3d at 1233 (quotation omitted). The burden is on the government to
prove the restriction on commercial speech is valid under the First Amendment.
Id.
Here, because it relied exclusively on Rust and its assertion it could
regulate the use of data solely because it was obtained through participation in a
governmentally funded program, the FCC has not attempted to meet its burden
under Central Hudson. It asserted in the 2008 Declaratory Ruling that the use of
customer data to contact customers outside the context of handling calls “is
inconsistent with the purpose of the TRS Fund.” 2008 Declaratory Ruling, 23
F.C.C.R. at 8998. Nowhere in the Declaratory Rulings or the FCC’s brief to this
court, however, does the FCC articulate the governmental interest to be served by
the restriction, or why the restriction is narrowly tailored to not restrict more
speech than necessary. Under the Central Hudson analysis, this court may not
“supplant the precise interests put forward by the [government] with other
suppositions.” Edenfield v. Fane, 507 U.S. 761, 768 (1993). The FCC’s broad
prohibition on all uses of customer data belies the notion that the prohibition is
-23-
narrowly tailored. Because the FCC does not explain why the restriction on the
use of customer data accords with the First Amendment, the restriction must fail.
Upon remand, the FCC must vacate the restriction on using customer data for
“lobbying or any other purpose.”
C. Restriction on Marketing Communications
Apart from the restrictions on the use of TRS Fund proceeds and customer
data, the Declaratory Rulings also prohibit or restrict certain marketing
communications between TRS providers and customers. The 2007 Declaratory
Ruling reiterated an existing prohibition on the use of financial and other
incentives for consumers to make TRS calls. 2007 Declaratory Ruling, 22
F.C.C.R. at 20173-74. The FCC noted it continued to discover providers were
providing improper incentives to customers. Id. at 20175. These impermissible
incentives included “calling a consumer and requiring, requesting, or suggesting
that the consumer make VRS calls.” Id. The 2007 Declaratory Ruling prevented
providers from using customer data “to in any way attempt to affect or influence,
directly or indirectly, their use of relay service.” Id. at 20176. The 2008
Declaratory Ruling clarified that this prohibition applies even when a provider
does not use customer data to engage in the communication. 2008 Declaratory
Ruling, 23 F.C.C.R. at 8998. GoAmerica argues this language is broad enough to
block essentially all marketing to customers, since almost all marketing
communications suggest the use of a service or are an attempt to influence
-24-
customer behavior. GoAmerica raises a variety of statutory and constitutional
challenges to this restriction on marketing practices. As a threshold matter,
however, this court must address whether GoAmerica adequately preserved its
challenge to this provision.
The FCC argues this court should not hear GoAmerica’s challenges to the
marketing restrictions because GoAmerica did not give the FCC an opportunity to
consider the challenges. Under 47 U.S.C. § 405(a), when “the party seeking []
review . . . relies on questions of fact or law upon which the Commission . . . has
been afforded no opportunity to pass,” a petition for reconsideration is a condition
precedent to judicial review. GoAmerica never filed a petition for
reconsideration and, the FCC argues, its arguments were never raised before the
FCC by any party. As a consequence, the FCC asks this court to dismiss
GoAmerica’s challenges to the restrictions on marketing practices.
The FCC acknowledges the ex parte correspondence from Hands On
tangentially addresses the lawfulness of the marketing restrictions, but argues the
letter contains no more than the “grist” of an argument and was insufficient to
give the FCC an opportunity to pass on the legal question at hand. See Nw. Ind.
Tel. Co. v. F.C.C., 824 F.2d 1205, 1210 n.8 (D.C. Cir. 1987); Alianza Federal de
Mercedes v. F.C.C., 539 F.2d 732, 739 (D.C. Cir. 1976). GoAmerica responds
that the Hands On ex parte letters sufficiently raised all of the arguments it
advances on appeal. It claims the letters gave notice of the legal deficiencies in
-25-
the 2007 Declaratory Ruling and it points out that an appellate court may
“consider the same basic argument [as raised before the FCC] in a more polished
and imaginative form.” Sprint-Nextel Corp. v. F.C.C., 524 F.3d 253, 257 (D.C.
Cir. 2008) (quotation omitted).
The three ex parte letters are substantially similar to each other. They
express support for the FCC’s regulation of “abusive marketing practices,
[including] . . . contacts made by provider representatives urging VRS consumers
to make more calls using a provider’s service.” The only portion of the 2007
Declaratory Ruling they criticize is “the portion . . . which prohibits providers
from contacting for any reason consumers who have registered with a provider.”
They then allege the restriction has constitutional, statutory, and policy-based
infirmities. The Hands On ex parte letters are almost entirely focused upon the
restriction on using customer data to contact customers. The one passing
reference to the regulation of marketing practices actually supports the FCC’s
position.
Far from giving the FCC an opportunity to pass on its objections to the
abusive marketing practices restriction, the letters indicate Hands On agreed with
the restriction. Because GoAmerica did not file a petition for reconsideration, the
failure to raise the basis for its legal challenge prevents GoAmerica from
obtaining judicial review. 47 U.S.C. § 405(a). GoAmerica’s petition for review
of the regulation on abusive marketing practices is therefore dismissed.
-26-
IV. CONCLUSION
The prohibition on the use of monies from the TRS Fund for lobbying
purposes is arbitrary and capricious in violation of the APA because the FCC
failed to provide any rationale for why lobbying expenses are the only use of TRS
Fund revenues to be specifically prohibited. The prohibition on the use of
customer data violates the First Amendment because it impairs commercial and
political speech and the FCC has failed to demonstrate why the prohibition is
justified under Central Hudson. The 2007 and 2008 Declaratory Rulings are
hereby REMANDED to the FCC for proceedings consistent with this opinion.
GoAmerica’s challenge to the restrictions on marketing practices is DISMISSED
because the challenge was not preserved for judicial review.
-27-