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Reinstatement of $90M lawsuit against Simon & Schuster may affect SMS marketing

The Federal Court of Appeals for the Ninth Circuit has reinstated a $90 million class-action lawsuit against book publisher Simon & Schuster for an SMS promotion related to author Stephen King's "The Cell" horror novel.

Announced Friday, June 19, the decision holds that text messages were under the purview of the federal Telephone Consumer Protection Act that makes it unlawful to generate automated calls to mobile phones.

"The FCC has explicitly stated that the TCPA's prohibition ? ?encompasses both voice calls and text calls to wireless numbers including, for example, short message service (SMS) calls,'" the court said in its opinion, citing an earlier interpretation by the Federal Communications Commission.

"[W]e find that the FCC's interpretation of the TCPA is reasonable, and therefore afford it deference to hold that a text message is a ?call' within the TCPA," the court said.

Laci Satterfield filed the suit after her young son is said to have received a text message in the middle of the night warning him that the "next call you take may be your last." The text was a promotion for Mr. King's book, "The Cell."

The Federal Court for the North District of California dismissed the case, saying that the TCPA did not apply to these text messages. The court also stated that Ms. Satterfield has agreed to receive text messages by downloading a free ringtone from an unrelated Web site.

The appellate court rejected both those arguments.

This case is being fought on behalf of a putative class of 60,000 consumers. Each of them could receive a minimum of $500 and a maximum of $1,500 if it is found that the violation was intentional, according to a statement issued yesterday by Ms. Satterfield's legal representatives.

Here's what Gonzalo E. Mon, attorney at Kelley Drye & Warren LLP, Washington, had to say about the decision and its implication for mobile marketers and text message campaigns:

Laci Satterfield became a registered user of Nextones in order to receive a free ringtone. During the registration process, Ms. Satterfield checked a box which read, in part: "I would like to receive promotions from Nextones affiliates and brands."

On Jan. 18, 2006, Ms. Satterfield received a text message from Simon & Schuster, advertising a novel by Stephen King.

Shortly thereafter, Ms. Satterfield filed a class action lawsuit alleging that Simon & Schuster's text message campaign violated the Telephone Consumer Protection Act (the "TCPA").

In June 2007, the Federal Court for the Northern District of California granted summary judgment to Simon & Schuster, holding that the company did not violate the TCPA.

Specifically, the court determined that the text message campaign did not violate the TCPA's prohibition against using an automatic telephone dialing system -- an "ATDS" -- because the device used to send the messages did not fall within the statutory definition of an ATDS.

Moreover, the court found that Ms. Satterfield agreed to receive text messages when she registered for Nextones.

Ninth Circuit opinion
On Friday, June 19, 2009, the Ninth Circuit Court of Appeals reversed the district court decision and remanded the case for further proceedings.

The Ninth Circuit held that the district court had erred because (1) there was a disputed issue of material fact as to whether the system Simon & Schuster used was an ATDS, (2) the text message was a "call" within the meaning of the TCPA, and (3) Ms. Satterfield did not consent to receive messages from Simon & Schuster, because Simon & Schuster is not an affiliate or brand of Nextones.

The following is a quick overview of each point:

1. The TCPA generally prohibits the use of an ATDS to place "calls" to a mobile number without the "prior express consent of the called party."

An ATDS is equipment that has "the capacity to store or produce telephone numbers to be called, using a random or sequential number generator and to dial such numbers."

The district court had held that the system used to send the messages was not an ATDS because the system did not actually store, produce or call numbers using a random or sequential number generator.

The Ninth Circuit, however, held that the proper question was whether the system had the capacity to do those things. There was no evidence in the record on that point.

2. Simon & Schuster had argued that the sending of text messages did not constitute a "call" under the TCPA.

Although the district court did not rule on that point, the Ninth Circuit disagreed with Simon & Schuster's argument. The term "call" is not defined by the TCPA.

However, the Federal Communications Commission has noted that the statute encompasses both "voice calls and text calls to wireless numbers including, for example, short message service (SMS) calls, provided the call is made to a telephone number assigned to such service."

The Ninth Circuit found this interpretation to be reasonable and, therefore, that the text message campaign was subject to the TCPA.

3. Simon & Schuster had argued, and the district court agreed, that Ms. Satterfield had consented to receive text messages when she signed up for Nextones.

The Ninth Circuit noted, however, that the term to which Ms. Satterfield had agreed specifically referred to promotions from Nextones "affiliates" and "brands."

The Ninth Circuit found that Simon & Schuster was not an affiliate of Nextones because Nextones neither owns nor controls Simon & Schuster.

Moreover, Simon & Schuster was not a brand of Nextones. Therefore, the consent that Ms. Satterfield provided on the registration form did not apply to the messages sent by Simon & Schuster.

Who does this decision affect?
It is important to note that the Ninth Circuit didn't decide that Simon & Schuster violated any law.

Instead, it decided that the district court should not have granted summary judgment in the company's favor because of various outstanding factual issues.

Nevertheless, this decision -- along with whatever the district court decides on remand -- is likely to affect every company that sends text messages to consumers.

What are the implications?
Consumers are showing a greater willingness to interact with companies on their mobile devices.

However, consumers are only willing to interact on their own terms and they don't want to receive unsolicited messages.

If a consumer gets a text message -- along with an associated charge -- he did not want, that consumer is likely to complain.

Moreover, those complaints are likely to lead to lawsuits and regulatory actions.

In recent years, we have seen many companies pay high prices -- up to $7 million -- for failing to get adequate consent in mobile promotions.

Those types of challenges are likely to continue, so companies need to make sure they comply with relevant laws.

Recommendations to marketers
The key lesson for mobile marketers is that they should not send text messages to any consumer unless the consumer has provided express consent to receive messages from the sender.

When seeking consent from consumers, it is important to make sure that the consumer understands the terms to which he is being asked to agree.

Marketers should clearly disclose what types of messages a consumer can expect to receive and which company will send the messages.

As always, it is a good idea to look at the Mobile Marketing Association's Consumer Best Practices Guidelines for examples of how to make disclosures and get consent.

Marketers have little to gain and a lot to lose from sending messages that consumers did not specifically want, so this is an area where it does not pay to be aggressive.