D.C. Circuit Holds that FCC’s Interpretation of the Term “Capacity” is Invalid Because It Makes Nearly Every American a “TCPA-Violator-in-Waiting”

The D.C. Circuit has rejected the FCC’s “impermissibly expansive” interpretation of what constitutes an Automatic Telephone Dialing System (“ATDS”) under the TCPA. ACA Int’l v. FCC, No. 15-1211, 2018 U.S. App. LEXIS 6535 (D.C. Cir. Mar. 16, 2018) (“ACA Ruling”). Under Congress’s two-pronged definition of the term, an ATDS is equipment that: (1) “has the capacity”; (2) to function as an autodialer (i.e. “store or produce telephone numbers to be called, using a random or sequential number generator”). The ACA Ruling addresses the ATDS definition in two parts – first analyzing the meaning of the word “capacity” and then analyzing the functionalities required of an ATDS. This article will focus on the first of these two pieces of analysis – the meaning of the term “capacity.”

Prior to the 2015 Omnibus, the law addressing the definition of an ATDS consisted of a patchwork of District Court and Circuit Court of Appeal rulings, together with the FCC’s pronouncements in its 2003 and 2008 Omnibus Rulings. Case law generally recognized two types of capacity – “present” capacity, and “potential” capacity to function as an autodialer. See, e.g., Marks v. Crunch San Diego, LLC, 55 F. Supp.3d 1288 (S.D. Cal. 2014). Though these types of capacity were conceptually recognized by courts, most reported decisions focused on a device’s “present capacity” to function as an autodialer. See, e.g., Drew v. Lexington Consumer Advocacy, LLC, No. 16-cv-00200-LB, 2016 U.S. Dist. LEXIS 52385, *12 (N.D. Cal. 2016); Anderson v. Security Fin. of Idaho, LLC, No. 4:12-cv-00487-BLW, 2015 U.S. Dist. LEXIS 43942 (D. Idaho 2015); De Los Santos v. Millward Brown, Inc., No. 13-80670-CV, 2014 U.S. Dist. LEXIS 88711 (S.D. Fla. June 29, 2014); Marks, supra.

The FCC first addressed the issue in 2003, and then again in 2008, ruling that equipment need only have the “capacity” to function as an autodialer, rather than the “present ability to do so.” See Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Report and Order, 18 FCC Rcd 14014 (2003) (“2003 TCPA Ruling”); Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Request of ACA International for Clarification and Declaratory Ruling, CG Docket No. 02-278, FCC Docket No. 07-232, 23 FCC Rcd 559 (2008) (“2008 TCPA Ruling”). In 2015, the FCC greatly expanded the meaning of the term, ruling that “capacity” was not just limited to a device’s “present ability” to function as an autodialer, but encompassed all “potential functionalities,” of the equipment, including “features that can be added to the equipment’s overall functionality through software changes or updates,” such as an app download or other software addition. In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 30 FCC Rcd. 7961, 7970, 2015 FCC LEXIS 1586 ¶¶ 6-7 (2015) (“2015 TCPA Ruling”) at 7947 ¶ 16 n.63 (emphasis added). This expansive interpretation of “capacity” sucked any “software-enabled dialing device” into the scope of the TCPA, including the most ubiquitous type of such device – the smartphone.

The D.C. Circuit recognized that, like most other pieces of dialing technology, smartphones can be easily modified to add autodialing functionality through the simple act of downloading an app. Id. at 14-15. Because every smartphone possesses such “potential capacity” to function as an autodialer, this meant that the single device “routinely used by a vast majority of citizens to make calls and send messages,” was now subject to the TCPA. Id. at 14. And because, under the FCC’s approach, “an uninvited call or message from a smartphone violates the statute even if autodialer features were not used,” this made nearly every American “a TCPA-violator-in-waiting, if not a violator-in-fact.” Id. at 16.

Given this inescapable conclusion, the D.C. Circuit held that the FCC’s interpretation went way too far: “If every smartphone qualifies as an ATDS, the statute’s restrictions on autodialer calls assume an eye-popping sweep.”  Ibid. According to the court, the FCC’s interpretation went well beyond what Congress had intended to regulate in the first place, and “would extend a law originally aimed to deal with hundreds of thousands of telemarketers into one constraining hundreds of millions of everyday callers.” Id. at 23-24. As such, the court held that the Commission’s interpretation of the term “capacity” could not survive judicial scrutiny, and was “utterly unreasonable in the breadth of its regulatory inclusion.” Id. at 24.

The D.C. Circuit was unmoved by the FCC’s attempt to run away from the issue. It rejected the Commission’s argument that the 2015 Omnibus did not “reach a definitive resolution on whether smartphones qualify as autodialers,” finding that “a straightforward reading of the Commission’s ruling invites the conclusion that all smartphones are autodialers.” Id. at 26. Even if that were the case, the court reasoned that because the 2015 Ruling did not specifically address whether smartphones are within the scope of the TCPA, it nonetheless failed to “articulate a comprehensible standard,” making it an arbitrary and capricious act by the FCC. Id. at 27-28.

But the meaning of the term “capacity” seemed to play a very small, if not insignificant role in the court’s overall ATDS analysis. The court in fact reasoned that labels such as “present” or “potential” capacity mattered little. Instead, questions such as what functions constitute autodialing, and whether those functions must actually be used to place a call, are far more important. Naturally, the narrower the functionalities of an ATDS, and the more restrictive “use” requirements are read into the TCPA, the broader the term “capacity” can be. For example, a broad definition of the term “capacity” that might even encompass a smartphone would be far less controversial assuming that the TCPA is read to apply to a far narrower band of functions that constitute autodialing, and triggered only when such functions are actually used to make a call. But as the 2015 Omnibus was written, each one of these concepts was interpreted by the FCC so broadly as to lead to the “anomalous” outcome of extending the scope of the TCPA to regulate everyday smartphone use by tens of millions of Americans. Id. at 16.

For now, the FCC’s ruling that any call or text sent from a device that merely has the “potential capacity” through modification to perform autodialer functions is no longer binding or valid. The status quo based on the patchwork of remaining case law suggests that devices with at least the “present” capacity to function as an autodialer are within the scope of the TCPA. The crucial question remains, however: what are the required functionalities of an ATDS?  We explore that issue in our next article.

Dorsey & Whitney

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