What constitutes an autodialer or “automatic telephone dialing system” (ATDS) under the Telephone Consumer Protection Act (TCPA) is in flux.

Under the statute, an “automatic telephone dialing system” is defined as “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.” 47 U.S.C. § 227(a)(1).

In a Declaratory Ruling and Order issued in 2015, the Federal Communications Commission “clarified” the ATDS definition by focusing on the term “capacity,” which the FCC interpreted not only as the device’s “present capacity,” but also its “potential functionalities” with modifications such as software changes. 2015 Declaratory Ruling, 30 FCC Rcd. at 7974 ¶ 16.

On March 16, 2018, however, the D.C. Circuit ruled that the FCC’s 2015 autodialer clarification was arbitrary and capricious because it was unreasonably, and impermissibly, expansive. At the core of the D.C. Circuit’s ruling was the practical problem that the FCC’s “capacity” clarification would ensnare the consumer smartphone – “it suffices to appreciate the Commission’s understanding that, as long as equipment has the ‘capacity’ to function as an autodialer—as is true of every smartphone under the agency’s view—any uninvited call or message from the device is a statutory violation.” The D.C. Circuit rejected this understanding:

It is untenable to construe the term “capacity” in the statutory definition of an ATDS in a manner that brings within the definition’s fold the most ubiquitous type of phone equipment known.… It cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact.

Since the D.C. Circuit’s ruling, the FCC held a public comment period to receive input on a revised definition of ATDS, and the FCC is expected to issue new rules soon.

In the interim, however, the Ninth Circuit, in Marks v. Crunch San Diego, LLC, No. 14-56834, has defined an ATDS rather broadly to include “a device that stores telephone numbers to be called, whether or not those numbers have been generated by a random or sequential number generator.”

In reaching its decision, the Ninth Circuit determined both that the statutory definition of an ATDS is ambiguous and that the FCC’s 2015 Declaratory Ruling regarding the definition of an ATDS (and its prior orders on that issue) is no longer binding. The court then read much into legislative inaction. In 2015, Congress amended the TCPA to exempt the use of an ATDS to make calls for a “debt owed to or guaranteed by the United States.” 47 U.S.C. § 227(b)(1)(B). Congress, however, did not amend the definition of an ATDS, which led the Ninth Circuit to state as follows: “Because we infer that Congress was aware of the existing definition of ATDS, its decision not to amend the statutory definition of ATDS to overrule the FCC’s interpretation suggests Congress gave the interpretation its tacit approval.”

Emboldened by legislative silence in the face of a defunct Declaratory Ruling, the court, in turn, offered its understanding of an ATDS, which it defined as “equipment which has the capacity—(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers.” The Ninth Circuit did not address whether equipment needs to have the present versus potential capacity to dial numbers.

Notably, the Ninth Circuit mentioned the D.C. Circuit’s concern that the FCC’s definition of an ATDS would include consumer smartphones, but the Ninth Circuit did not articulate how its definition avoids the smartphone problem. Smartphones certainly “store” and “dial” numbers, and, as stated by the D.C. Circuit, “essentially any smartphone, with the addition of software, can gain the statutorily enumerated features of an autodialer and thus function as an ATDS.” Thus, it appears that the Ninth Circuit’s definition runs afoul of the core problem that led the D.C. Circuit to invalidate the FCC’s 2015 Declaratory Ruling. Moreover, the Ninth Circuit rejected what it labeled the “unreasoned opinion” of the Third Circuit in Dominguez ex rel. Himself v. Yahoo, Inc., 894 F3d 120 (3d Cir. 2018), which held that a device “must be able to generate random or sequential numbers in order to qualify as an ATDS.”

Whether a system used for telemarketing is or is not an autodialer affects the nature of legal compliance, including the scope and method of recipient consent, required under the TCPA. The TCPA provides for statutory damages and a private right of action, and noncompliance with the TCPA has become a source of literally thousands of class actions. The bottom line is that the definition of an autodialer is in flux; it may change again when the FCC issues its new rules, and there is now a Circuit split on the issue. Defendants in TCPA cases should follow any appeal in Marks, and perhaps examine the propriety of a stay pending clarification of what precisely is an “autodialer.” Companies engaging in telemarketing, including SMS text marketing, particularly in the Ninth Circuit, should take a conservative approach when determining if a system is an autodialer. This includes not taking vendor representations that their system is not an autodialer at face value, but rather independently examining the issue and also obtaining a warranty and indemnity from the vendor on this issue where possible.

BakerHosteler’s Advertising, Marketing and Digital Media and Privacy and Data Protection practices regularly counsel clients on TCPA and other telemarketing compliance, including providing operational guidance, negotiating and vendor engagement. Our Litigation and Class Action Defense practices are experienced in defending TCPA claims. For more information, contact Paul Karlsgodt at pkarlsgodt@bakerlaw.com or the author.