Loyola University Chicago School of Law, JD 2022
A full year of quarantine, and a whole lot of spam. You wouldn’t be alone in noticing that telemarketer and spam calls have proliferated in the past year of lockdown. The Federal Trade Commission (“FTC”) has noticed, too: the tail end of 2020 saw the agency file its first ever complaint against a VoIP service provider for enabling scammers to make robocalls. Just weeks later, they filed their second. The agency is making clear that this new method of enforcement will help combat the issue—but is it?
VoIP—what is it?
VoIP, or Voice over Internet Protocol, allows users to transmit voice and audio signals from a computer or phone across interest connections to another computer or phone. Essentially, one can make phone calls from a computer. These days, we think of Skype, FaceTime Audio, or WhatsApp, but it can still even be a traditional phone call. When computers, or other technologies, automate both the calling process and the message being delivered, you get the phenomenon known as “robocalling”.
VoIP is not a new technology; nor is robocalling: both were developed in the 1970s and 1980s, rising in popularity in the 1990s and 2000s. Today, apps utilizing VoIP are commonplace features on any new smartphone—the tech is relatively low cost and simplified at this point.
The Federal Communications Commission (“FCC”) handles the majority of VoIP regulation. Much like traditional telephone service, FCC dictates how this technology is to be utilized for mass communications, including for specialized services like 911 and other emergencies, as well as accessibility to those with disabilities.
The FTC gets involved, however, when VoIP is used as a means to advertise or otherwise conduct business with consumers in an unfair or deceptive way. This tracks with pretty much any action taken by the agency. FTC has targeted telemarketers since the 1990s, when Congress directed the agency to address the issue via the Telemarketing and Consumer Fraud and Abuse Prevention Act. The resulting regulation was the Telemarketing Sales Rule (“TSR”), 16 C.F.R. Part 310.
FTC in action
In September 2020, FTC announced a settlement agreement for its first-ever Consumer Protection action against a VoIP service provider. The $2.1 million settlement arose out of an FTC action taken against Globex, Inc., a VoIP service provider, for facilitating and enabling a telemarketing scheme to be conducted by several of its clients. FTC used the TSR to bring the action, alleging that Globex knowingly allowed clients to conduct a fraudulent telemarketing scheme to sell a credit card interest reduction rate program. Not only was the program fraudulent; the means by which it was communicated violated the TSR by utilizing robocalling and accessing numbers on FTC’s Do Not Call Registry. Globex, as the VoIP service provider, agreed to pay $1.9 million of the $2.1 million total settlement. FTC mandated that, moving forward, Globex properly screen clients who will use their VoIP service, and block any outgoing calls that appear to be suspicious or harassing.
FTC doubled down on VoIP-targeted enforcement just weeks later when it went after another company, Alcazar Networks, Inc., for very similar actions. The FTC used more charged language in describing the defendants—labelling them the “gatekeepers” to illegal telemarketing conduct. Alcazar’s clients used many familiar tactics: robocalling with pre-recorded messages, spoofing incoming call numbers to appear as “911” or other government services, and accessing people on the Do Not Call Registry. According to the FTC, Alcazar allowed tens of millions of illegal calls to be placed over its VoIP service. And for that, they would be punished.
Here, FTC proposed a settlement agreement where Alcazar would pay $105,562 in the judgement. Additionally, they must severe all ties with any client violating the TSR and must authenticate and monitor the traffic on their service. It is unclear whether the significantly lower monetary penalty, when compared to the Globex settlement, stems from an inability to pay or perhaps because the violation wasn’t as great.
The final message
The message from FTC is that compliance with TSR is not optional and is not to be taken lightly. However, in a statement of concurrence on the Alcazar decision, Commissioner Christine S. Wilson clarified a point that these violations are not strict liability, and that VoIP providers must knowingly aid, or willfully ignore, violators to be subject to action.
Perhaps this statement was meant to clear things up—to show VoIP providers that FTC isn’t just out to get everyone. But does this sort of hedging language effectively put providers on alert? And with such inconsistent monetary punishment, might non-compliance be more profitable than the punishment of getting caught?
In the months since these decisions, spam calls have not slowed. It is likely we will see more action from FTC. Is it the answer we’re looking for?