The Fax Machine Is Not Extinct - Opt-Out Provisions
On March 31, 2017, the D.C. Circuit Court vacated a rule by the Federal Communications Commission ("FCC") that required opt-out notices on solicited faxes under the Junk Fax Prevention Act ("JFPA"). As Circuit Judge Kavanaugh noted – "Believe it or not, the fax machine is not yet extinct."
The backdrop of this decision involved a rule issued by the FCC related to solicited faxes. Under the JFPA, most unsolicited fax advertisements are banned. However, there are exceptions to the general rule. If an allowed unsolicited fax advertisement is sent, it must include an opt-out notice.
Following enactment of the JFPA, the FCC put in place the Solicited Fax Rule mandating that senders of solicited faxes must also place an opt-out notice on the faxes. In 2008, Anda (a seller of generic drugs) was sued in a class action for violations of the FCC's Solicited Fax Rule, where plaintiffs sought over $150 million in damages. Anda, along with several other businesses facing similar class actions, petitioned the FCC for a declaratory ruling that the JFPA does not require an opt-out notice on faxes sent with recipient's express permission. The FCC denied the petition and adhered to its interpretation that it had authority under the JFPA to issue the Solicited Fax Rule.
Anda and others challenged the order as exceeding the authority of the FCC under the JFPA. The question before the Court was whether the JFPA's requirements for opt-out notices on unsolicited faxes authorized the FCC to require an opt-out notice on solicited faxes. In a 2-1 decision, the D.C. Circuit ruled that the FCC does not have such authority under the JFPA.
Aside from the revelation that faxes are not extinct, the notable point raised by the Court was in the rejection of the FCC's argument that the FCC may take an action so as long as Congress has not explicitly prohibited such agency action. In a blunt opinion, the majority stated that the FCC's theory "has it backwards as a matter of basic separation of powers and administrative law," and that the FCC may only take action that Congress has authorized. The JFPA only requires opt-out notices on unsolicited faxes, and is silent on solicited faxes. As such, the FCC was not authorized to put in place the Solicited Fax Rule.
Two takeaways. First, the power of the FCC to issue regulations related to privacy issues, such as in this case, may not be unbounded. Second, companies that do not adhere to privacy provisions, such as opt-out notice regulations, may be subject to significant damages claims.