Court Pulls Plug on ‘Electronic DJ’ Telemarketing

Electronic dance music (EDM), featuring disc jockeys who make music simply by pressing buttons on a console to stream together seamless selections of pre-recorded tracks, has revolutionized the art of making music. Its acceptance and place in the pantheon of American pop culture is symbolized by numerous Grammys that have gone to EDM artists, as well as a groundbreaking performance by EDM DJ deadmau5 (pronounced “dead mouse”) at the 2012 awards show.

An innovation similar to EDM has also taken the telemarketing industry by storm. Known as “soundboard technology,” it is a computerized system that allows a live agent to communicate with a call recipient using prerecorded, conversational audio snippets instead of the agent’s own voice to interact in real-time with a customer. The technology works in tandem with a live agent, who is always listening to the customer and able to choose the most appropriate snippet to use to move the call along, just as an EDM DJ mixes a track by selecting and segueing recordings. If necessary, the live agent can interject and speak in real time. “Soundboard” calls are thus different from a prerecorded message, or “robocall,” which is completely automated, with no human interaction.

Soundboard technology has found wide adoption in the telemarketing industry because of the efficiencies and positive consumer experience it can offer. As companies began to use it, they also thought it had won the blessing of the Federal Trade Commission (FTC). Why would that matter? Because if the FTC thought a soundboard call was a robocall despite the differences, then – like robocalls – they too would be banned under the FTC’s Telemarketing Sales Rule (TSR) without the “prior express written consent” of the person being called.

The reason for the industry’s optimism was a 2009 FTC staff opinion that concluded that the constant human presence during soundboard calls creates enough of a true two-way conversation that they should not be subject to the stringent consent requirements that apply to fully automated prerecorded messages. After years of the industry investing heavily in soundboard technology in reliance on this “green light,” the FTC suddenly reversed course last November.

Citing consumer dissatisfaction with soundboard calls, such as unhelpful responses and inadequate human intervention, which showed that the calls did “not represent a normal, continuous, two-way conversation between the call recipient and a live person,” the FTC staff said it would regulate soundboard calls like robocalls after all, and gave the industry until this month to come into compliance with the prerecorded call restrictions in the TSR, including the tough consent requirement. Brushing aside the industry’s longtime reliance on its previous stance, the FTC did not ask for public comment. Its decision was final.

Feeling blindsided by the FTC U-turn and viewing it as an existential threat, an industry trade group, the Soundboard Association (SBA), sought a court injunction to prevent enforcement of the TSR’s prerecorded call provisions against its technology. It argued that the FTC’s abrupt about face amounted to a substantive change in the TSR and, under the Administrative Procedures Act (APA), could not be enacted without public comment. It also made a First Amendment argument pertinent to the use of soundboard technology in charitable solicitation but not commercial calls. The FTC conclusion that soundboard calls were now robocalls was not challenged.

Last month, the U.S. District Court for the District of Columbia granted summary judgment to the FTC, upholding its new interpretation that soundboard calls are “robocalls” under the TSR and require the same type of consent. The court found that the revised FTC staff opinion was not a “legislative” rule but was, at most, an “interpretive” rule that did not require an opportunity for public comment under the APA. It also rejected the SBA’s First Amendment challenge to enforcement of the TSR’s prerecorded call provisions against the use of soundboard technology in certain types of charitable fundraising.

The SBA already has filed a notice of appeal. This battle is not over but, for now, any telemarketer that uses “electronic DJs” to make calls to consumers without their prior express written consent will be in violation of the TSR and subject to FTC sanction, including civil penalties of up to $40,000 for each unlawful call.

Talking about Direct Response, FTC

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