February 01, 1996 | Electronic Retailing Magazine

Protecting Your Investment In Toll-Free 800 Numbers

8 min

The following article can be found in the January/February 1996 issue of Electronic Retailing Magazine.

Usually, when a person makes a long distance telephone call, the caller pays the toll for that call. One familiar exception is when a person calls a number within the 800 area code./1 These numbers are referred to as “toll-free” numbers, because they are free for the caller--instead it is the owner of the telephone number who pays for the call./2 Since they were introduced in 1967, toll-free 800 telephone numbers have proven to be extremely lucrative for retailers. Each year, billions of dollars worth of goods and services are ordered by consumers over these toll-free telephone numbers. Many retailers have invested huge sums of money in advertising to help familiarize the public with their 800 telephone numbers. Another recent development is the use of what are known as “vanity numbers.” Vanity numbers are numbers which spell out words by reference to the letters on a telephone keypad. Well known examples of vanity numbers include 1-800-COLLECT, 1-800-THE-CARD, and 1-800-FLOWERS. Businesses which use vanity numbers or other well-publicized 800 toll free numbers can benefit tremendously from this familiarity because consumers will call the familiar number before even reaching for the yellow pages.

The success of toll-free 800 numbers has led to a problem: telephone companies are running out of 800 numbers. To make sure that businesses can still obtain new toll-free numbers, the Federal Communications Commission (FCC) is on the verge of releasing a whole new set of telephone numbers which will be toll-free. Soon, businesses will be able to obtain numbers in the new 888 area code. These numbers will work in precisely the same way as 800 toll-free numbers. Although an abundance of new toll-free numbers will ultimately benefit retailers, the release of the new 888 area code poses some problems for current owners of 800 telephone numbers. Businesses which have invested heavily in publicizing their telephone numbers now face the probability that consumers will confuse the two toll-free codes and will dial the wrong number. There are also likely to be businesses which deliberately buy an 888 number which corresponds to a highly successful 800 number. For example, perhaps a florist will obtain 1-888-FLOWERS, and will reap the benefits of consumers who mistakenly dial 1- 888-FLOWERS after seeing an advertisement for 1-800-FLOWERS.

Businesses have alerted the FCC to these potential problems, and the FCC has suggested a number of possible methods to reduce these potential harms to current subscribers of 800 service. First, the FCC has proposed that the holder of a toll-free 800 number have a “right of first refusal” on the identical telephone number in the new 888 area code. This would mean that an owner of an 800 telephone number would have the right to purchase the equivalent 888 number instead of having that number be assigned to another business. This is an especially appealing option for businesses whose success is closely linked to consumer familiarity with an 800 number. For example, the owner of 1-800-FLOWERS would probably exercise its right of first refusal on 1-888-FLOWERS to prevent dilution of the marketing and publicity successes surrounding the current number. Of course, the down side to exercising this right of first refusal is that it would cost the business money, both in terms of operating and maintaining a new telephone number, and in terms of a fee which might be charged to businesses which exercise this right. Furthermore, if too many 800 subscribers exercise their rights of first refusal, it might not be long before another toll-free number shortage develops.

A more complex FCC proposal involves the classification of all commercial users of toll-free telephone numbers by an “industrial code,” perhaps one which would be similar to the Standard Industrial Code system used by the Census Bureau. If a business with a particular industrial code owned a toll-free number in the 800 area code, then all other businesses with that same industrial code would be forbidden from subscribing to the equivalent number in the 888 system. To see how this would work, look at the case of 1-800-FLOWERS. Under this FCC proposal, any business with the same “industrial code” as the current owner of 1-800-FLOWERS would be prohibited from receiving the 1-888-FLOWERS number. Presumably, all florists and similar businesses would be assigned the same code. Thus, a florist (or similar commercial enterprise) would be barred from subscribing to the 1-888-FLOWERS number. Presumably, the assignment of 1-888-356-9377 (the numerical equivalent of 1-888-FLOWERS) to a bank or a pet store would not threaten the investment which has been made in the 1-800-FLOWERS number. While there would still be consumer confusion and misdialed numbers, 1-800-FLOWERS would not have to worry about a competitor reaping the benefits of the advertising and publicity of the 1-800-FLOWERS number.

The primary advantage of this FCC proposal is that it would allow the full range of 888 numbers to be released, instead of having 800 users buy up a portion of the equivalent 888 numbers. However, this proposal has significant disadvantages. First of all, this program would be nearly impossible to administer in an efficient manner. Who will determine what “industrial code” will be assigned to a particular businesses (and how would you categorize a combination pet store and flower shop)? What will prevent businesses from lying or misleading the telephone company with regard to the nature of its business? What will happen if a vanity number would be lucrative for many types of businesses, such as 1-800-FOR- HELP, or similar numbers. Also, how will the FCC prevent the non-florist recipient of 1-888- FLOWERS from later selling or somehow transferring the number to a florist?

Another problem with this proposal is its potential cost to businesses. While current 800 users would be spared the expense of having to exercise the right of first refusal, there are a number of hidden costs involved. Businesses would have to worry about whether they were missing important, misdialed calls. Owners of very familiar or well-publicized 800 numbers would have to spend a great deal of money to make it clear to the public that the number is 800 and not 888. Also, unscrupulous “number brokers” could obtain 888 numbers and force owners of successful 800 numbers to pay premium prices for the equivalent 888 number.

The FCC has additional proposals, including a “gateway” system which would intercept an 888 or 800 call and ask the caller which of the two businesses he or she was trying to reach. This would be only a temporary solution however, because this “gateway” would be removed once the public has adjusted to having more than one toll free area code.

Even if the FCC does not provide sufficient protection to businesses which subscribe to 800 service, there are other avenues of the law which may provide that protection. For example, trademark and unfair competition law have been used to prevent businesses from using “confusingly similar” telephone numbers to take advantage of consumers who have mistakenly misdialed a number. Additionally, some businesses have successfully used trademark law to prevent competitors from using confusingly similar vanity telephone numbers. For example, Holiday Inns was able to prevent a hotel reservation company from using the number which spelled 1-800-H[zero]LIDAY (the “o” in holiday was a zero) as a means of profiting from consumers who had misdialed, intending to call 1-800-HOLIDAY, the number for Holiday Inns. Similarly, the Dial-A-Mattress company was able to restrict the use of 1-800-MATTRES(S)/3 by a competitor in areas of the country where Dial-A-Mattress had previously used the number MATTRES(S) under local (non toll-free) area codes.

However, not all owners of vanity numbers are equally protected by trademark law--some must instead lean more heavily on the law of unfair competition. Some vanity numbers spell out words which are entitled to the full protection of trademark law; owners of these numbers may sue a competitor for use of the trademark, whether or not the word is spelled out in a telephone number. For example, Holiday Inns has a good case for preventing competing hotel chains from using the word “holiday” in advertisements, whether or not the word is used in connection with a telephone number. However, some words cannot receive trademark protection in certain contexts. For example, a florist could never obtain a trademark on the word “flowers”. Likewise, a mattress seller could never obtain a trademark on the word “mattress.” This is because in these contexts, the words “flowers” and “mattress” are generic. When a term is “generic”, it is not ordinarily eligible for trademark protection. This is true for two reasons. First, depriving competitors of the use of such a crucial word would be unfair. For example, a florist could not do much business if he or she could not advertise using the word “flowers”. Second, one of the purposes of trademark law is to help consumers identify products by source--that is, to distinguish between different brands of mattresses or flowers. Generic terms are not permitted as trademarks because they identify the product itself, not the source of a product. Thus, trademarks are not allowed for generic, product-identifying terms such as “flowers”, “mattress” or “cola”, while at the same time trademarks are permitted for source-identifying terms such as “FTD” flowers, “Beautyrest” mattresses or “Pepsi” cola.

Owners of vanity numbers which spell generic terms may have more trouble protecting their numbers in court than do owners of vanity numbers which spell non-generic terms. Courts in the Third Circuit have, in the past, denied protection to these businesses. However, other courts, most notably the Second Circuit, have recognized the dangers of allowing competitors to use confusingly similar numbers and have treated such abuses as a trademark violation, or a violation of unfair competition law, even in cases where the number spelled out a generic term. This explains how Dial-A-Mattress was able to protect its lucrative vanity number which spelled a generic term.

The release of the new 888 toll-free numbers is expected to begin in early 1996. Retailers which have invested time, money and effort in publicizing their vanity or other 800 toll-free numbers should be aware of their rights and understand how to best protect their investment.