Fed Up with Autodials: Litigation or Arbitration?

BACKGROUND

Congress passed the Telephone Consumer Protection Act (TCPA) in 1991 to restrict the emerging practice of telemarketing. Telemarketing is the often-unsolicited practice of autodialing individuals to market various products or services in the form of a pre-recorded, automated voice message, and is the subject of frequent consumer complaints. The TCPA imposes limits on telemarketing, including restrictions on times call may be made and maintaining an active do-not-call list; these limits may only be avoided by written consent from the consumer.

ISSUE

Under a wireless services contract that binds consumers to arbitrate any disputes with the providing company and its affiliates, may a satellite television company that became an affiliate of a wireless services provider several years after the signing of such contract compel arbitration when a consumer brings a suit under the Telephone Consumer Protection Act?

THE SPLIT

 In 2020, the Seventh and Fourth Circuit Courts of Appeals both heard cases on the arbitrability of “infinite arbitration clauses” of contracts, a term created by legal scholar David Horton to describe arbitration agreements that use “infinite” language to bind parties to arbitration. Such language attempts to widen the scope of arbitrable disputes as much as possible to those arising anytime and anywhere, regardless of whether such disputes arose from any relationship between the contracting parties. As a result, judges have had to decide how literally to interpret such provisions.

The Ninth Circuit

In 2018, Jeremy Revitch filed a lawsuit against DirecTV for alleged violations of the TCPA after the company repeatedly called him with automated messages advertising cable services. Revitch had never been in contact with DirecTV, had never given consent for such phone calls, and after enduring considerable frustration with the autodialing, attempted to bring a class-action lawsuit against the company on behalf of all similarly-situated consumers.

DirecTV filed a motion to compel arbitration. The company had discovered that in his 2011 contract with wireless services provider AT&T, Revitch had agreed to mandatory arbitration for any disputes arising out of his relationship with AT&T, and with any of AT&T’s “affiliates”. DirecTV had been acquired by AT&T, Inc. in 2015, becoming, along with AT&T Mobility, a subsidiary of that company, making DirecTV and AT&T Mobility, in DirecTV’s affiliates.

Revitch initiated his class-action claim against DirecTV in the United States District Court for the Northern District of California; the district court denied DirecTV’s motion to compel arbitration, holding that the contract between Revitch and AT&T “did not reflect an intent to arbitrate the claim that Revitch asserts against DIRECTV”. DirecTV appealed the ruling to the Ninth Circuit.

Under the Federal Arbitration Act, federal courts do not have the discretion to determine the arbitrability of claims. Federal judges are “limited to determining (1) whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at issue”, writes Circuit Judge Diarmuid O’Scannlain in Revitch v. DIRECTV, LLC (2020), quoting an earlier case. A judge may only hold that an arbitration clause is not enforceable if the answer to either of these questions is no.

To answer the first question, Judge O’Scannlain turned to California state contract law, relying on a presumption against absurd results to answer in the negative. The California Civil Code stipulates, in §§1636 and 1638 respectively, that contracts are to be interpreted “so as to give effect to the mutual intentions of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful”, and that “the language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”. The court said that Revitch could not reasonably have expected that, when he was signing a cell phone services contract with AT&T, that he was entering into an agreement to arbitrate any disputes he may have with any company that affiliates with AT&T years into the future, and as a result, DirecTV is not a party to the contract between Revitch and AT&T.

The Court expressly acknowledged that their decision in Revitch creates a circuit split with the Fourth Circuit:

“[W]e are aware that with our decision today, we are opening a circuit split on this difficult issue: Can anything less than the most explicit “infinite language” in a consumer services agreement bind the consumer to arbitrate any and all disputes with (yet-unknown) corporate entities that might later become affiliated with the service provider—even when neither the entity nor the dispute bear any material relation to the services provided under the initial agreement?”

The dissent in Revitch argued that the canon against absurd results is not appropriate here, and that the plain language of the agreement between Revitch and AT&T dictates that Revitch must arbitrate his claim against DirecTV:

“Nothing in the arbitration clause or in the dictionary definition of the word ‘affiliate’ confers any type of temporal scope to the term so that ‘affiliates’ should be read to refer only to present affiliates. DirecTV is therefore an affiliate within the explicit language of the arbitration clause.”

The Fourth Circuit

The facts in the Fourth Circuit decision of Mey v. DIRECTV, LLC are similar to those in Revitch and, indeed, both cases share the same defendant. In Mey, Diana Mey sued DirecTV for violation of the TCPA when the company solicited Mey by repeatedly calling her cell phone, even though her phone number was listed on the National Do Not Call Registry. DirecTV moved to arbitrate the case because of an arbitration provision Mey signed when entering into a cellular services contract with AT&T.

The Fourth Circuit held that, since DirecTV is unambiguously an affiliate of AT&T, and that the arbitration clause gave no indication that the term “affiliate” had temporal limitations, Mey had signed a contract to arbitrate her disputes with DirecTV. The court pointed to the language of the contract to argue that there were no temporal limitations. For example, the contract used terms such as “successors” and “assigns” in addition to “affiliate”, and the arbitration clause provided for the arbitrability of “claims that may arise after the termination of this [cellular services] Agreement.” The arbitration clause also provided  that “all disputes and claims between us” were to be arbitrated, implying that the contract was intended to cast as wide a net as possible.

In so holding, the Fourth Circuit, similarly to the dissent in Revitch, rejected the idea that the arbitration with DirecTV was an “absurd result” of the contract interpretation. Circuit Judge Rushing, author of the opinion, stated:

“In light of the expansive text of the arbitration agreement, the categories of claims it specifically includes, and the parties’ instruction to interpret its provisions broadly, we must conclude that it is “‘susceptible of an interpretation'” that covers Mey’s TCPA claims… The text of the agreement arguably contemplates arbitration of Mey’s claims, and any ambiguity about whether those claims are included “must be resolved in favor of arbitration.” Indeed, “the presumption in favor of arbitrability is particularly applicable when the arbitration clause is broadly worded,” as it is here.”

LOOKING FORWARD

Revitch voluntarily dismissed his complaints against DirecTV without prejudice. In the case of Mey v. DIRECTV, LLC, the Fourth Circuit remanded the case to the District Court for the Northern District of West Virginia. Because Mey’s attorneys had not argued that the pertinent arbitration clause was “unconscionably overbroad” before her case was appealed to the Fourth Circuit, that issue was left to be litigated again when the case was remanded. The District Court once again denied DirecTV’s arbitration claim. As it currently stands, Mey is able to challenge DirecTV in court rather than through arbitration.

Nonetheless, the issue of infinite arbitration clauses and their interpretability is likely to persist. The dissent in Revitch and the internal disagreements in the Fourth Circuit illustrate that there is not judicial consensus on whether entities like DirecTV may enforce arbitration provisions in which their connection to the underlying agreement is tenuous. Further, corporations are likely to continue the use of infinite arbitration clauses because they perceive that arbitration decisions are less likely to be friendly to consumer suits. As long as contracts continue to contain infinite arbitration clauses, there is likely to be litigation over the enforceability of those clauses.

For further reading, see: https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=9691&context=penn_law_review

When Unsubscribe Doesn’t Work: How Should We Define Autodialers in the Age of Cell Phones?

BACKGROUND

In 1991, Congress passed the Telephone Consumer Protection Act (TCPA) in an effort to curb unsolicited robocalls. Section 227(a)(1) of the TCPA defines an automatic telephone dialing system (ATDS) as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” Section 227(b)(1)(B) prohibits the use of ATDS devices to contact any residential telephone “without the prior express consent of the called party.” 47 U.S.C. § 227.

THE ISSUE

Under the TCPA, is the definition of an ATDS  limited to only those devices that both produce phone numbers using a random or sequential number generator and automatically dial those numbers; or does the definition encompass a broader scope of devices that can still store and automatically dial phone numbers, but do not use random number generators?

THE SPLIT

The Sixth, Second, and Ninth Circuits have adopted a broad interpretation of the language of the TCPA. These three circuits believe that the broad definition will ensure companies that use autodialers to harass individuals will be held accountable for their actions. The Third, Seventh, Eleventh, and D.C. Circuits have disagreed and instead interpret the TCPA narrowly. One of the main justifications posited by these circuits is that a broad definition would cover too many modern electronic devices never intended by Congress when it enacted the TCPA.

Broad Interpretation

In July 2020, the Sixth Circuit joined the Second and Ninth Circuits in affirming a broad interpretation of the TCPA definition of autodialers. In Allan v. Pa. Higher Educ. Assistance Agency (2020), the court ruled that the TCPA definition includes devices that do not use random or sequential number generators. In Allan, the plaintiff took out a student loan from the Pennsylvania Higher Education Assistance Agency (PHEAA) and in doing so, consented to future calls regarding her loan. The plaintiff later requested that she not be called. After requesting to be taken off the phone list, the plaintiff and her cosigner were called a combined 353 times with automated messages. The PHEAA used a system called Avaya, which stored phone numbers and could automatically dial them to send automated messages. Avaya did not use a random or sequential number generator to create the phone numbers to call. The plaintiff sued the PHEAA alleging that the automated phone calls she did not consent to were in violation of the TCPA.

In interpreting the TCPA, the Sixth Circuit in Allan ultimately held in favor of the plaintiff, stating that “the autodialer ban applies to stored-number systems.” Even though the Avaya system did not use a random number generator, it still fell within the type of device making the type of phone calls from which the TCPA was designed to protect. The court rejected the Seventh and Eleventh Circuit’s narrow definition of an autodialing system that requires the use of random or sequential number generators, noting that such a narrow definition would unreasonably defang the TCPA by allowing companies to use one device to randomly generate the phone numbers and a second device to call the numbers. According to the Sixth Circuit, a narrow definition would thus create a loophole for companies to escape prosecution under the TCPA.

In April 2020, the Second Circuit held similarly in Duran v. La Boom Disco, Inc. (2020). In Duran, the plaintiff sued the defendant for sending over 100 text messages through a computer program. In interpreting the meaning of the TCPA, the court contemplated both a broad and narrow definition of an autodialer, but ultimately reasoned that “in order for a program to qualify as an ATDS, the phone numbers it calls must be either stored in any way or produced using a random-or sequential-number-generator.” In other words, to be an ATDS, a program does not have to meet both criteria. Finally, the Ninth Circuit adopted a broad interpretation of an autodialer in 2018 in Marks v. Crunch San Diego, LLC when it reasoned that the definition of an ATDS includes devices with the capacity to dial stored phone numbers automatically, regardless of the existence of random number generators.

Narrow Interpretation

The Third, Seventh, Eleventh, and D.C. Circuits have all held that a narrow definition of an autodialer is more appropriate. In February 2020, the Seventh Circuit held for the defendant in Gadelhak v. AT&T Services(2020). The court reasoned that the capacity to generate random or sequential numbers is essential to the TCPA definition, and because an AT&T text messaging program did not use a random number generator, the TCPA did not apply. The Third Circuit held similarly in Dominguez v. Yahoo, Inc (2018), where the court ruled in the defendant’s favor because the plaintiff was unable to prove that an automated email and SMS program had the “capacity to function as an autodialer by generating random or sequential” numbers.

The D.C. and Eleventh Circuits both adopted the same narrow definition of an autodialer, but also brought up an interesting policy argument in support of their interpretation. In ACA Int’l v. FCC (2018), the D.C. Circuit posited that a broad definition that allows for any device that can store and automatically call a phone number would be unreasonable because it would include just about every modern cellphone. The Court worried that a broad interpretation would mean that “every smartphone user violates federal law whenever she makes a call or sends a text message without advance consent.” The Eleventh Circuit shared a similar worry in Glasser v. Hilton Grand Vacations Co., LLC (2020) when it said that “it’s hard to think of a phone that does not have the capacity to automatically dial telephone numbers stored in a list[.]”

Interestingly, the Sixth Circuit in Allan offered a counter to the D.C. and Eleventh Circuits’ cell-phone argument. The Sixth Circuit determined that just because a device has the capacity to store and dial phone numbers automatically, it is not automatically an autodialer under the TCPA. The court claimed that to be prosecuted under the TCPA, the device must not only possess the requisite qualities, it must be physically utilized as an autodialer as well. Using the Sixth Circuit explanation, a cell phone would not count as an autodialer unless someone purposefully programmed it to be used as one.

LOOKING FORWARD

The Supreme Court is scheduled to hear oral arguments in Facebook, Inc. v. Duguid in December 2020. In its petition for a writ of certiorari, Facebook is asking the Court to clarify which definition of the TCPA ought to apply. If the Supreme Court adopts the broader definition of the Second, Sixth, and Ninth Circuits, there could be interesting implications for essentially all modern cell phones. If all cell phones are found to qualify under the TCPA, we could see new legislation in Congress further limiting the scope of the TCPA.

Pharmaceutical Fracas: Can Misrepresentation Count as Proximate Cause in a Pharma RICO Claim?

BACKGROUND

Pharmaceutical drugs cause side effects – with that notion, there is no dispute. However, the issue of whether patients, physicians, or payors (underwriting insurance companies) are adequately informed of those side effects is often up for dispute. In 2017, Takeda Pharmaceuticals Company finalized a Master Settlement Agreement (MSA), in which it agreed to pay damages to patients who took Actos, a Type II Diabetes medication, and later developed bladder cancer.

In 2017, several additional patients and multiple insurance companies filed a civil Racketeering Influence and Corrupt Organizations Act (“RICO”) action against Takeda for its misrepresentation of Actos’s side effects to prescribing physicians and patients. In Painters and Allied Trades District Council 82 Healthcare Fund v. Takeda Pharmaceuticals Co. (2019), the plaintiffs alleged that neither the patients nor the payors knew the cancer risks associated with Actos at the time of purchase and that neither would have paid for the drug had they known of the risks. The District Court for the Central District of California dismissed the action for failure to state a claim under FRCP 12(b)(6). Plaintiffs appealed to the Ninth Circuit.

To satisfy the standing requirement of a civil RICO claim under 28 U.S.C. § 1964(c), the Ninth Circuit has held that a “plaintiff must show: (1) that [their] alleged harm qualifies as injury to his business or property; and (2) that [their] harm was ‘by reason of’ the RICO violation.” The latter has been interpreted by the Supreme Court to require both proximate and but-for causation in these matters.

In applying these principles to Painters and Allied Trades, the Ninth Circuit reasoned that the patients and the payors were “the most direct victims . . . who suffered economic injury” and thus had sufficiently alleged proximate cause. The Court remanded to the district court for further proceedings. Contention arises on the issue of the standing of the payor, specifically whether a payor can sufficiently allege proximate cause as a result of misrepresentation to prescribing physicians.

THE ISSUE

Is the proximate cause element of a RICO matter satisfied where a third-party payor alleges they would not have underwritten a prescription for a pharmaceutical drug if the drug manufacturer had not misrepresented safety risks to prescribers?

THE SPLIT

In addition to the Ninth Circuit, the First, Second, Third, and Seventh Circuit Courts of Appeals have weighed in on the proximate cause requirements of a RICO matter. The First and Third Circuits both take a similar approach to the Ninth Circuit in Painters and Allied Trades. The Second and Seventh Circuits have held that such an allegation is not a sufficient showing of proximate cause for a RICO case.

The First Circuit ruled similarly to the Ninth Circuit in In re Neurontin Marketing and Sales Practices Litigation (2013), where a jury awarded Kaiser Foundation Health Plan damages for misrepresentation of a drug’s off-label use. Kaiser made its allegations as an insurance company covering the cost of prescriptions (“third-party-payor”). The drug, Neurontin, was manufactured and sold by Pfizer. The FDA approved Neurontin for the treatment of shingles-related seizures and pain. However, Kaiser alleged that Pfizer had misrepresented and promoted the drug to payors and providers as an effective treatment of bipolar disorder, neuropathic pain, and migraines. A public health and economics expert testified that, nationally, approximately 99.4% of Neurontin prescriptions for bipolar disorder, 70% of Neurontin prescriptions for neuropathic pain, and 27.9% of Neurontin prescriptions for migraines, would not have been written if Pfizer had not engaged in a fraudulent misrepresentation campaign. Kaiser thus alleged that its underwriting was a direct result of the misrepresentations. The First Circuit found this allegation, and the chain of causation, to be adequate for proximate cause under RICO. The Supreme Court denied Pfizer’s petition for writs of certiorari addressing this and two other similar matters.

Likewise, the Third Circuit ruled in favor of a class of payors that sued GlaxoSmithKline under RICO for deceptive marketing of Type II diabetes medications. The plaintiffs in In re Avandia Marketing, Sales Practices & Products Liability Litigation (2016)were union health and welfare funds that underwrote Avandia prescriptions for members instead of less expensive alternatives. This decision to cover was based on GSK’s representations to physicians about Avandia being safer than less expensive alternatives (of which Actos was one). Years of regulations and studies proved that this was patently false. In 2010, the Senate concluded that GSK had failed to warn the FDA and the public of the side effects of Avandia, and that GSK had attempted to downplay and misrepresent the potential heart-related risks. The plaintiffs alleged that there was a sufficient connection between the manufacturer’s years-long misrepresentation of Avandia and its underwriting of prescriptions for the drug. The Third Circuit deemed this reliance to be sufficient for the RICO proximate cause requirement. The Supreme Court denied certiorari.

Unlike the First and Third Circuits, the Second Circuit declined to find underwriting as a result of misrepresentation sufficient to allege proximate cause. In UFCW Local 1776 vs. Eli Lilly & Co. (2010), it summarily rejected doctor reliance national misrepresentation campaigns as a sufficient showing of but-for causation. There, Eli Lilly & Co. had minimized the drug Zyprexa’s risk of diabetes and hyperglycemia to patients and prescribers across the United States, Europe, and Asia. It also made “excessive claims of utility” and overcharged for the drug. The Second Circuit ruled that because doctors do not “generally consider the price of a medication when deciding what to prescribe for an individual patient[,]” the doctors’ reliance on misrepresented utility and potential side effects was not a proximate cause of the price that the third-party payors ultimately paid for the drug. This, the Second Circuit reasoned, was too attenuated to award damages to payors under RICO. In combination with other matters against Eli Lilly & Co., the Supreme Court denied certiorari.

The Seventh Circuit in Sidney Hillman Health Center of Rochester v. Abbott Laboratories (2017) made a conclusion similar to that of the Second Circuit. Plaintiffs in Sidney Hillman were insurers that underwrote member off-label prescriptions for Depakote. The drug, manufactured by Abbott Laboratories, was approved by the FDA for treatment of seizures, migraines, and certain conditions related to bipolar disorder. Abbott marketed the drug to physicians as effective in treating schizophrenia, dementia, and attention deficit hyperactivity disorder (ADHD). In 2012, Abbott pleaded guilty to criminal actions and settled civil actions resulting from this off-label promotion. In an opinion by Judge Easterbrook, the Seventh Circuit panel ruled that payors’ claims were too attenuated since the misrepresentation was directed only at physicians. Payors were “several levels removed in the causal sequence[,]” and thus could not satisfy the RICO proximate cause requirement.

LOOKING FORWARD

In the age of increasing opioid litigation, the debate over payor recovery for drug company misrepresentations to prescribing physicians is a debate ripe for review. The Supreme Court has denied certiorari from parties on both sides of this split. However, given the increased scrutiny of pharmaceutical companies as a result of the national opioid crisis, the Court may soon be forced to consider proximate cause requirements in civil RICO matters of “payor versus pharma.”

Third Party Liability in Unsolicited Fax Advertisements: Somehow, a Thing that Exists.

The Issue

Your beeper business has seen better days. Sure, it was doing great for a few years, but ever since Clinton left office, things haven’t quite been the same. You know it’s time for a big play to turn things around. I know it’s a bit flashy, but it’s time to start thinking about advertising. And not just any advertising. You need to bring out the big guns. Yeah, you know what I’m talking about.

Unsolicited mass faxes.

You’ve decided to send out fliers to every single fax machine within a 10-mile radius. But you don’t have the know-how for such techno-wizardry, so it’s time to bring in the reformed Phone Phreaks over at Sir FaxALot. You tell them the plan. You give them the money. They get to work.

Two weeks later, you get a knock on your door. It’s a process server. Turns out that sending out unsolicited advertising faxes is a violation of the Telephone Consumer Protection Act (TCPA) of 1991. It also turns out that the console jockeys down at Sir FaxALot misplaced a decimal point, and your ad went out to every single fax machine within a 100-mile radius.

So here’s the question: with whom does the liability lie? Is it all on you? Or is Sir FaxALot on the hook?

Surprisingly, the circuits are still split on this (somehow) pressing issue.

Background

The American consumer is protected by several different laws. Insofar as Americans are protected against abuses related to telecommunications, the TCPA has been a bedrock of consumer protection law for over three decades. Protections such as the Federal Do Not Call Registry, regulations against spammers, and the all-important ban on unsolicited advertising faxes can be traced to this act. Parties who violate the TCPA are subject to stiff penalties, which are keyed to the medium of the violation (e.g., telephone, SMS, fax, etc.) and each individual consumer affected by the infraction. In 2005, the TCPA was expanded and amended by the Junk Fax Prevention Act, the penalty for unsolicited advertising faxes is $500 per page per person.

Naturally, nobody wants to pay such a penalty should they get caught, so it becomes necessary to see which type of third party liability applies. Determining the extent to which each party is liable is where we find our split.

The Split

Here, we have the Sixth Circuit and the Seventh Circuit disagreeing over the extent to which third party liability for faxing violations applies.

Seventh Circuit

In Bridgeview Health Care Ctr. Ltd. v. Clark (2016), a small medical supply business instructed a third-party marketing firm to send roughly 100 faxed advertisements to local businesses within a 20-mile radius of Terre Haute, Indiana. Instead, the marketing firm sent 4,849 faxed advertisements across three states. In determining whether the medical supply business was liable for faxes sent out beyond the 20-mile radius, the Seventh Circuit applied three types of common law agency analysis: express actual authority, implied actual authority, or apparent authority.

First, express actual authority:

Because B2B expressly contradicted Clark’s actual instructions, this is clearly not express actual agency.

Second, implied actual authority:

While express actual authority is proven through words, implied actual authority is established through circumstantial evidence. Id. Nothing about fax marketing inherently calls for sending thousands of advertisements. And nothing about fax marketing inherently demands sending these ads to states where the advertiser does not do business. We thus find it impossible to conclude that implied actual authority exists here.

Third: apparent authority:

To create apparent authority, the principal must speak, write, or otherwise act toward a third party. His conduct must make the third party reasonably believe that he has consented to an action done on his behalf by someone purporting to act for him…In short, B2B made an independent decision to blast faxes across multiple state lines.

In short, the medical supply company could not be held liable for the violations of the TCPA committed by a third party.

The Sixth Circuit

In deciding Siding and Insulation Co. v. Alco Vending Inc., the Sixth Circuit split itself. First, the court held that a hybrid test to determine “on whose behalf” such faxes were sent would be more appropriate for faxes sent before 2006. Such a test involved balancing between common law agency principles (as outlined above) and certain policy considerations, such as “whether and to what extent each entity investigated the lawfulness of the fax broadcasts at issue.”

However, in dicta the court indicated that the standard post-2006 as established by the Federal Communications Commission’s (FCC’s) governing regulations applied a standard of strict liability. In other words, the small business that contracted out for the infringing advertising services would be on the hook for the full extent of the damages.

Looking Forward

This is going to be a brave new world for fax-based mass marketing. The split indicates that we may be headed for a showdown between common law agency analysis and strict liability. Depending on the jurisdiction one poor, outdated marketing decision could be a small business’s last.

Watching Big Brother on your Phone Means Big Brother’s Watching You: Limits on Consumer Privacy

The Battle for Privacy

If you have a smartphone, you probably have downloaded an application, such as a game or a social or news platform. When you open the app for the first time, sometimes it will prompt you to register or give permission to the developer to track your activity and send this data back to the developer or third parties. However, most of the time the app will not do this, because usage as written in the terms and conditions of the app provides implied consent, so that every time you access and use the app, you give silent permission for the app to track your usage.

So what may a consumer rely upon for protection of her privacy? The Video Privacy Protection Act of 1988 (“VPPA”) (codified at 18 U.S.C. 2710).

VPA

The VPPA was enacted in response to a newspaper’s published report of Supreme Court nominee Judge Robert H. Bork.

The report contained Judge Bork and his family’s video rental records. The VPPA was passed to “preserve personal privacy with respect to the rental, purchase, or delivery of video tapes or similar audio visual materials.” See Senate Report. In effect, a few important provisions include:

  • A general ban on the disclosure of personally identifiable rental information unless the consumer consents specifically and in writing.
  • Disclosure of “genre preferences” along with names and addresses for marketing, but allowing customers to opt out.
  • The VPPA does not preempt state law. That is, states are free to enact broader protections for individuals’ records.

See Electronic Privacy Information Center.

Privacy Protection Exists for the Consumer-Subscriber

Our interactions with applications today are far more developed than they were back in 2002 when the VPPA was first enacted. Today, video rental records containing someone’s name and what movies she has seen are not the main sources of identifying a person. Apps often pull information such as our GPS coordinates of where we open and use them as well as information of what kind of phone is accessing the app’s server. As a result, many different types of information in addition to the user’s name can easily identify a person.

Does downloading and using a free app make the user a subscriber under the Video Privacy Protection Act?

In Yershov v. Gannett Satellite Info. Network, Inc., (Apr. 29, 2016), the First Circuit found that it does, splitting with the Eleventh Circuit in Ellis v. Cartoon Network, Inc., (Oct. 9, 2015) that found that it does not.

The Split

Textually, the meaning of subscriber is limited to the definition of consumer in the VPPA. However, the Eleventh Circuit found that the definition of “subscriber” includes “some type of commitment, relationship, or association (financial or otherwise) between a person and an entity.” See Ellis at 11. Other aspects to subscribing include actual “payment, registration, commitment, delivery [expressed association,] and/or access to restricted content.” Id.

Additionally, the absence of the above factors including not signing up or establishing an account, making any payments, becoming a registered user, signing up for any periodic services or transmissions, or making any commitment or establishing any relationship that would allow [the user] to have access to exclusive or restricted content thus did not make someone a subscriber. See Ellis at 13-14. In effect, the Eleventh Circuit created a presumption that an application download “is the equivalent of adding a particular web site to one’s Internet browser as a favorite.” Id.

In Yershov v. Gannett Satellite Info. Network, Inc., No. 15-1719 (1st Cir., Apr. 29, 2016), Yershov downloaded and accessed the USA Today app on his smartphone. In his complaint, Yershov claimed that each time he used the app, Gannett, d/b/a USA Today, would send information such as the title of the video watched, an Android unique identifier number, and GPS coordinates to a third party.

In dismissing the complaint and reversing the district court’s ruling, the court broadened the definitions of PII and consumer, finding that (1) GPS coordinates and the unique identifier number of a device fall under the PII umbrella and (2) an app user qualifies as a consumer.

The First Circuit disagreed with the Eleventh Circuit’s ruling in Cartoon Network on the issue of a “subscriber” and its analogy of downloading an app to bookmarking/adding a website to a favorites folder.

In the First Circuit’s view, an app developer would not bother creating an app if bookmarking a website would create the same result. Instead, the court found that an app is a more cost effective version of a “hotline” that a subscriber could call to continuously order videos. The First Circuit found Yershov to be a subscriber because

[t]o use the App, Yershov did indeed have to provide Gannett with personal information, such as his Android ID and his mobile device’s GPS location at the time he viewed a video, each linked to his viewing selections.  While he paid no money, access was not free of a commitment to provide consideration in the form of that information, which was of value to Gannett…[Furthermore, downloading an app is] materially different from what would have been the case had USA Today simply remained one of the millions of sites on the web that Yershov might have accessed through a web browser.

Looking Forward

The First Circuit’s broad view may create issues for developers whose main source of app content includes video streaming, as “its ruling may expand the scope of PII to include situations where device IDs and GPS codes may be used to reverse engineer an individual’s identity using information collected from other sources”[1].

Additionally, since GPS coordinates are analogous to an individual’s street address, whether that is a broad view can be argued further if one compares online streaming and GPS coordinates to addresses pulled from the rental of video tapes and other audio visual materials.

App developers may soon face additional data collection and disclosure issues, and whether the appropriate level of consent is obtained when collecting and sharing precise data location information with third parties. A prima facie VPPA claim could be attached where apps share consumer data with third parties without expressed consent.

For further reading, see the blog posts of firms DWT: (1) and (2) and DLA Piper and the Technology and Marketing Law Blog.

[1] See Christin McMeley and John D. Seiver, 1st Circuit and FTC Address Definitions of “PII,” While Michigan Amends Privacy Law to Remove Statutory Damages, available at http://www.dwt.com/First-Circuit-and-FTC-Address-Definitions-of-PII-While-Michigan-Amends-Privacy-Law-to-Remove-Statutory-Damages-05-11-2016/