Business Law Breakdown – FCC Issues Guidance for Companies Promoting Apps via Text Message

Nick-Feldman-smNick Feldman’s practice focuses on corporate transactions, including mergers and acquisitions, dispositions, private equity transactions and general corporate matters for both public and private clients, focusing on middle-market and emerging growth companies. In addition, Nick counsels companies in connection with entity formation, corporate governance, federal and state securities laws and compliance, joint ventures, employee incentive plans, executive employment agreements and other executive compensation matters. Nick also serves as an Adjunct Professor at Loyola Marymount University, where he lectures on media law topics.

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Text message promotions have long been touted as a marketing jackpot for mobile applications due to their high open rates and short click-path to download—look no further than companies like Lyft for success stories. However, refer-a-friend invitations have also come under fire for violating the Telephone Consumer Protection Act (the “TCPA”), a law originally implemented to crack down on invasive telemarketing. Class action lawsuits that successfully establish that individuals received unsolicited text messages could result in penalties of up to $1,500 per text message.

On July 10, 2015, the Federal Communications Commission released a Declaratory Ruling and Order clarifying portions of the TCPA. In response to petitions from app-based service providers TextMe and Glide, the FCC set out best practices for companies utilizing text message promotions. In doing so, it established that the app user, not the company, may be responsible for initiating the text message in certain scenarios, opening the door for wider use of refer-a-friend text message promotions.

In order to comply with the TCPA, the FCC determined that companies must satisfy a balancing test which requires some direct connection between a person or entity and the sending of the text message. Specifically, the test examines who took the steps necessary to physically send the text message and whether another person or entity was so involved in sending the text message as to be deemed to have initiated it.

Pursuant to the FCC’s 2013 DISH Declaratory Ruling, persons or entities that merely have some minor role in the causal chain that results in the sending of a text message generally do not take the steps necessary to physically send such a text message, and thus are not deemed to “initiate” the text message.

In the case of TextMe, the app’s users invited friends to use the service via text message by engaging in a multi-step process in which the users had to make a number of affirmative choices.  First, they were required to tap a button that read “invite your friends.” They were then able to choose whether to invite all their friends or individually select contacts, and finally they were prompted to send the invitational text message by tapping another button.

The FCC determined that, to the extent that TextMe controlled the content of the advertising message, the company might be liable under the TCPA. Despite that cause for concern, however, the TextMe app users’ choices and actions caused the user to be so involved in sending the text message as to be deemed its initiator. For that reason, TextMe’s invite flow was deemed not to violate the TCPA.

TextMe’s practices contrasted with those of Glide, which sent text message solicitations automatically to all of its app users’ contacts unless a user affirmatively opted out. In that scenario, the FCC determined that Glide initiated the text messages because the app user played no role in deciding whether to send the invitational text messages, to whom to send them, or what to say in them.

Ultimately, not all app providers are exempt from liability under the TCPA. In light of the FCC’s guidance, a company that desires for its users to send text message invitations to their contacts should require the user’s affirmative consent with respect to (1) whether to send a message, (2) who the message is sent to, and (3) when the message is sent. To further limit potential liability, the company should allow the user to determine or modify the language of the invitation message.

It is also worth noting that FCC’s declaratory rulings are not binding on trial courts, but are instead interpreted as persuasive authority. However, due to the limited amount of case law interpreting the TCPA, FCC opinions like this one are the primary source of guidance as to how companies should comply with the law.

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For more information about services for your legal needs, contact Nick Feldman at nfeldman@stubbsalderton.com or (818) 444-4541.

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