Update on Fax Laws: Congress Restores the "Established Business Relationship" Exception for Commercial Faxes

13 min

The Junk Fax Prevention Act of 2005 allows associations and companies to send unsolicited faxes to their members, clients and customers, provided that the sender offers a cost-free, 24-hour means for those recipients to "opt out" of receiving future fax solicitations.  In a forthcoming rulemaking, the FCC may exempt trade and professional associations from the requirement to include an opt-out notice on unsolicited fax advertisements sent to their members.  Despite the helpful new law, the underlying ban remains on sending unsolicited fax advertisements to those with no prior relationship to the association and can be a trap for the unwary.

On June 28, 2005, Congress amended the Telephone Consumer Protection Act ("TCPA") to allow associations, businesses other organizations and individuals to send unsolicited fax advertisements to those with whom the sender has an established business relationship ("EBR"), provided that the advertisement contains a conspicuous notice on its first page that the recipient may request not to receive any unsolicited fax advertisements from the sender in the future.  President Bush signed the Junk Fax Prevention Act of 2005 into law on July 9, 2005, and it took effect on that date.

With the Junk Fax Prevention Act, the TCPA prohibits sending any "unsolicited advertisement" to the fax machine of a recipient unless the sender has an established business relationship with the recipient.  An "unsolicited advertisement" means "any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that person's prior express invitation or permission, in writing or otherwise" (emphasis added).  The Junk Fax Prevention Act added the words "in writing or otherwise" to the definition of "unsolicited advertisement," thus indicating that a person may consent verbally to receiving faxes.

Prior to enactment of the Junk Fax Prevention Act, the FCC had determined that marketers would need to evidence "prior express invitation or permission" by a signed, written statement that included the fax number to which any advertisements may be sent and that clearly indicated that recipient's consent to receive such faxes from the sender.  When the FCC overhauled its telemarketing and fax rules in July 2003, it eliminated a rule that allowed an EBR to constitute "prior express invitation or permission."  However, shortly after releasing its July 2003 rules, the FCC stayed enforcement of its fax rules to allow marketers to continue faxing those with whom they had EBRs so that marketers would have adequate time to obtain written consent from members, customers, clients, and prospects.  Indeed, just moments before Congress passed the Junk Fax Prevention Act, the FCC further extended a stay of its fax rules from June 30, 2005 to January 9, 2006.  The Junk Fax Prevention Act supersedes the FCC's stay. 

Of particular importance, the Junk Fax Prevention Act clearly establishes the EBR exception as part of the TCPA.  Some state courts had refused to recognize the EBR exception because it appeared in a footnote in the FCC's order creating the original rules to implement the TCPA and was not specifically written into the FCC's regulations or included in the statutory language of the TCPA as enacted in 1991.  This created a particularly serious problem when private individuals brought suit in state court against those that sent fax advertisements without obtaining express consent, even though there was a valid EBR.  Now, the EBR exception must be recognized by all state and federal courts, as well as by all state and federal regulators enforcing the TCPA.  Nonetheless, there are some state laws that purport to place additional restrictions on sending faxes.  The FCC is currently considering the scope of its preemptive authority under the TCPA and may decide to preempt inconsistent state telemarketing (including fax) laws.  Unless and until it does, however, those sending faxes that contain unsolicited advertisements should check applicable state laws first.  Nonetheless – especially in states without more restrictive laws – the Junk Fax Prevention Act allows marketers to continue using faxes as an efficient, cost-effective means to reach out to existing members, clients and customers.

Forthcoming FCC rules regarding the new law should clarify many open issues, including potential time limits on the duration of an EBR and whether tax-exempt trade and professional associations may be exempt from the requirement to include an opt-out notice with each unsolicited fax.  There will be ample opportunity for those in the association and business communities to participate in future FCC rulemaking proceedings to help shape new FCC rules.

The Junk Fax Prevention Act Amends the TCPA

The TCPA, as amended by the Junk Fax Prevention Act, prohibits sending an "unsolicited advertisement" by fax unless the sender has an established business relationship with the recipient and the fax contains a disclosure notifying the recipient of the opportunity to opt-out of receiving future unsolicited fax advertisements from the sender.  Unless the sender established a business relationship with the recipient prior to enactment of the Junk Fax Prevention Act, the statute further requires that the sender obtain the recipient's fax number either through the recipient's voluntary communication of such number, within the context of the established business relationship, or from a directory, advertisement or site on the Internet to which the recipient voluntarily agreed to make available its fax number for public distribution.

If a "do-not-fax" request is received from a person or entity with whom the sender has an EBR, the sender must stop sending unsolicited advertisements by fax to the person or business who made the request.  FCC rules should clarify whether senders must honor such requests within a certain period of time.

Absent an established business relationship, the TCPA and the FCC's corresponding rules still prohibit the sending of an "unsolicited" fax advertisement.  As amended by the Junk Fax Protection Act, the TCPA provides that an "unsolicited advertisement" includes any commercial advertisement transmitted without the recipient's prior express invitation or permission, in writing or otherwise.  When the FCC modified it fax rules in July 2003 to eliminate the EBR exemption, it required a signed, written statement that included the specific fax number to which advertisements could be sent and the recipient's consent to receive such advertisements.  The "in writing or otherwise" language in the new statute appears to ease this burden and allow oral or unsigned permission to suffice.  There may be issues of proof without a written document, but this should prevent absurd situations where a person would be violating the law by sending a fax to a person who had verbally asked for the fax, but not in a signed writing.

Definition of Established Business Relationship

The Junk Fax Prevention Act legislatively codifies, for purposes of faxes only, the FCC's definition of "established business relationship" that existed on January 1, 2003.  Under this definition, an established business relationship means "a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a residential subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party."  The Junk Fax Prevention Act further clarifies that an "established business relationship" includes a relationship between a fax sender and a business subscriber, on the same terms applicable to a relationship between a fax sender and a residential subscriber.  Thus, a trade association may establish an EBR with a corporate member, and it is arguable (but not certain) that the EBR would extend to all employees of the corporate member.  FCC rules may help clarify this issue.

The new law allows the FCC to undertake a rulemaking proceeding to establish a time limit on the duration of a fax EBR, provided that the FCC first considers several issues:  (1) whether the definition has resulted in a significant number of complaints to the FCC; (2) whether a significant number of any such complaints involve unsolicited advertisements that were sent on the basis of an EBR that was longer in duration than the FCC believes is consistent with the reasonable expectations of consumers; (3) the costs to senders of demonstrating the existence of an established business relationship within a specified period of time and the benefits to recipients of establishing a limitation on the established business relationship; and (4) whether, with respect to small businesses, the costs would not be unduly burdensome.  The FCC may not commence a proceeding to determine whether to limit the duration of the EBR before three months after the date of enactment of the Junk Fax Prevention Act.

The Opt-Out Notice

The FCC is required to prescribe regulations implementing the requirement to provide notice of the recipient's right to opt-out of receiving future unsolicited fax advertisements from the sender.  The FCC must require that the notice be disclosed clearly and conspicuously on the first page of any unsolicited advertisement and include each of the following elements:

(1)  A statement that the recipient may make a request to the sender of the fax not to send any future unsolicited advertisements to a telephone fax machine or machines.  Forthcoming FCC regulations must specify that failure to honor any such "opt-out" request, within the shortest reasonable time (to be determined by the FCC), is unlawful.

(2)  A domestic contact number and fax machine number for the recipient to transmit an opt-out request to the sender.

(3)  A cost-free mechanism that the recipient can use to transmit a "do-not-fax" request pursuant to the opt-out notice.  The FCC, at its discretion, may exempt certain classes of small business senders, but only if the FCC determines that the costs to such class are unduly burdensome given the revenues generated by such small businesses.

The telephone and facsimile machine numbers and cost-free opt-out mechanism must permit an individual or business to make an opt-out request at any time on any day of the week.

There are also certain requirements that the FCC must prescribe to govern the form in which fax recipients submit opt-out requests.  Specifically, any request not to send future unsolicited advertisements to a telephone fax machine must identify the telephone number or numbers of the fax machines to which the request relates.  The request must be made to the telephone or fax number of the sender of the unsolicited advertisement, as provided in the opt-out notice, or by any other method of communication as determined by the FCC.  It is possible that the FCC could declare that "do-not-fax" requests received verbally must be honored in the same manner as those received by telephone or fax.  If the person making a fax opt-out request later provides express invitation or permission to the sender, in writing or otherwise, to send such advertisements to him or her at the fax number specified, then the sender may resume sending unsolicited fax advertisements to that person.  The aforementioned "in writing or otherwise" language may indicate that a member or customer who made an earlier "do-not-fax" request may trump that prior request by handing over a business card at a conference trade show, for instance, with a verbal request to receive advertisements by fax.  It is unclear just what steps an organization would need to take to prove that it had obtained prior express invitation or permission to fax a particular person.

The FCC has nine months to promulgate the rules specifying how the opt-out mechanism will work and the exact requirements of the notice.  In the interim, those sending faxes should decide what type of reasonable opt-out notice they will provide on their faxes.

Opportunity for a Specific Membership Exemption for Trade and Professional Associations

Of particular importance to the association community, the Junk Fax Prevention Act provides that the FCC, at its discretion, may allow “tax-exempt trade or professional associations” (but not other types of nonprofit organizations) to send unsolicited advertisements to their members in furtherance of the association's tax-exempt purposes without including the opt-out notice required by the new law.  The FCC may take such action only by regulation issued after the public has had an opportunity to comment on this proposal, and if the FCC determines that the opt-out notice is not necessary to protect the ability of an association's members to stop the association from sending any future unsolicited advertisements. 

Enforcement of the Fax Rules

Violations of the TCPA, as amended by the Junk Fax Prevention Act, may be enforced by the FCC, state attorneys general, and/or private individuals.  The TCPA includes a private right of action that allows any person to bring an action to enjoin further violations and to recover either for actual monetary loss resulting from a violation, or for statutory damages of $500 per violation, whichever is greater.  If a court finds that the defendant willfully or knowingly violated the fax provisions of the TCPA, it may increase the damages award up to three times the amount otherwise available.  Most private individuals who sue to recover damages under the TCPA ask for the highest amount of damages possible, or $1500 for each violation, and often argue that each separate violation (e.g., failure to include the opt-out notice, and failure to obey a fax opt-out request) warrants a separate monetary penalty for each violating fax.  Thus, damages in private lawsuits can be quite costly.  Moreover, violators may face class action lawsuits with even higher damages claims.

States also may bring enforcement actions on behalf of their residents to recover $500 – and up to $1500 – for violations of the fax provisions of the TCPA.  The FCC's general enforcement powers allow it to fine violators up to $11,000 per violation.

Technical Requirements for Sending Faxes

In addition to the rules regarding the sending of unsolicited fax advertisements, as modified by the Junk Fax Prevention Act, existing rules and regulations governing certain technical aspects of sending faxes remain unchanged.  Specifically, FCC rules make it unlawful for anyone to send any message – whether commercial or not – via a fax machine unless that person clearly marks, in a margin at the top or bottom of each transmitted page (or, if the fax machine was manufactured before December 20, 1992, on the first page) the following information:  (1) the date and time that the fax is sent, (2) an identification of the business, other entity, or individual sending the message, and (3) the telephone number of the sending machine or of the sender.

If an organization hires a fax broadcaster to transmit faxes on its behalf, and that fax broadcaster demonstrates a high degree of involvement in the fax message, that broadcaster's name must be identified on the fax, along with the sender's name.  Activities such as supplying the numbers to which a message is sent or controlling the content of a message may demonstrate this "high degree of involvement," according to the FCC.

Because these technical requirements do not stem from a section of the TCPA that provides a private right of action, it is arguable that private individuals cannot enforce these rules.  Nonetheless, the FCC can enforce these technical requirements with fines of up to $11,000 per violation.

The Bottom Line

At least until the FCC completes a rulemaking to establish regulations implementing the new fax law, associations and businesses should review the new rules for fax EBRs and draft appropriate opt-out disclosure statements to include in unsolicited fax advertisements sent to their existing members, clients and customers.  The association community will have an opportunity to demonstrate to the FCC that the opt-out notice rule should not apply to faxes to members transmitting information related to the association's tax-exempt purposes, but until such time as the FCC agrees, the new rules apply equally to both nonprofit and for-profit entities.  Finally, the Junk Fax Prevention Act does not change the rules for sending faxes to anyone with whom the sender does not have an EBR; for them, before sending fax advertisements, the sender must obtain the recipient's prior express invitation or permission.  Failure to comply can prove to be very costly.

For more information, contact Mr. Tenenbaum at 202/344-8138 or jstenenbaum@venable.com, Mr. Jacobs at 202/344-8215 or rmjacobs@venable.com, or Ms. Traupman at 202/344-4704 or eetraupman@venable.com. This publication is not intended to provide legal advice or opinion.  Such advice can only be provided in response to specific fact situations.