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On the Issue of regulating outbound telemarketing abuses, this paper proposes a new perspective of recognlzlng telephone lines as a property of consumers. Phllosophlcally, current approaches to the Issue based on privacy and fraud are Inadequate to justify the regulatlon of telemarketers. In Implementatlon, self-regulation and exlstlng governmental measures have both falled to deter malpractice8 of telemarketers. Telemarketing Is argued to be a legltlmate means of communl~lon, so we need to com- promise the conflld between the right of telemarketers’ access to consumers and consumers’ property rlghts to telc phone Ilnes. Maklng telemarketing calls should be recognized as a prlvllege, and licensing of telemarketers Is proposed as a solutlon.

The author is a doctoral student in the Mass Media PhD Program, Department of Advertising, Michigan State -University, Room 309. Communication Arts Buildina, East Lansing, MI 48824-1212, USA (T& +l 517 332 8119; fax: +l 517 336 2589; email: [email protected]).

The author would like to thank Dr Thomas Muth and Dr Lincoln James for their com- ments on this paper.

Consumers’ property rights to telephone lines in outbound telemarketing

Louisa Ha

The proliferation of telemarketing as a low-cost interactive marketing technique has profound implications for the usage of the telephone as an advertising medium in developed countries. In the USA telemarketing is a billion-dollar business with annual sales amounted to $430 billion.’ Currently there are no comprehensive regulations on telemarketing. The running of the industry is largely based on self-discipline and some codes of practice developed by direct-marketing professional associa- tions. There are two types of telemarketing: inbound and outbound telemarketing. Inbound telemarketing is the calling-in of consumers to marketers for product information or purchase. Outbound telemarketing is the making of unsolicited telephone calls to consumers by the marketer. In inbound telemarketing consumers are in control as they take the initiative to make the calls. Outbound telemarketing, in contrast, gives the initiative to marketers who solicit consumers by telephone calls and engage the telephone lines owned by the consumers without their prior consent. Telephone users’ names in resident telephone directories do not necessarily imply they welcome people to use their lines for soliciting business.

This paper proposes that we should analyse the issue from a new perspective: recognizing telephone lines as consumers’ property. The federal government should take up the responsibility of protecting consumers’ property right by licensing telemarketers. We will first examine the nature of telemarketing as a form of commercial speech, its uniqueness and legitimacy as a marketing tool, the necessity for regulation and the major concern over outbound telemarketing. The second part of the paper will explain why existing measures based on privacy invasion and fraud, the two traditional approaches to telemarketing abuses, failed to address the unique nature of telemarketing. The telephone line is proposed as a property right of consumers subject to special rules.

‘US Congress, The Telephone Consumer Definition of the scope of telemarketing has been one of the major Protection Act of 1991, S1462. problems in policies over regulation of telemarketing. The industry

540 0308-5961/93/070540-l 4 @ 1993 Butterworth-Heinemann Ltd

*Ft. Liederman, The Telephone Book: How to Find, Get, Keep and Develop Custom- ers, McGraw-Hill, ‘London, 1996, p 55. 3P. Fielding and G. Drummond, Tele- marketing Factomatic, Prentice-Hall, En- fewood Cliffs, NJ, 1991, p 3. US Conaress. Telemarketina Practices:

Heating &fore.the Subcommi&e on Tele- communications and Finance of the Com- mittee on Energy and Commerce, House of Representatives, 101 th Congress, first session on HR 828, HR 2131 and HR 2184,24 May 1989. ‘See Ann Lailande, ‘The troublemakers’, Marketing and Media Decisions, Vol 24, May 1989, p 128; and Dave Jensen, ‘Hold- ing the line - again’, Business Journal - Milwaukee, Vol 12,30 December 1991, p 8. %.S. Nadel, ‘Rings of privacy: unsolicited telephone calls and the right of privacy’, Y&a Journal on Regulation, Fall 1988, pp 99-l 28. ‘Robert Posch, ‘Nuisance/privacy infrac- tions’, Direct Marketing, Vol‘50, December 1987, p 125; and ‘A song for the unsung’, Direct Marketing, Vol54, August 1991, pp 85-68.

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defines telemarketing as ‘any measurable activity using the telephone to help find, get, keep and develop consumers’* or ‘selling goods or services using the telephone as the instrument that transmits the information about the goods or services’.3 However, when it comes to regulation, the definition of ‘the use of telephone to purchase or sell products and services or obtain and give information’4 is rejected by the industry as broad enough to include normal business calls.’ In fact, telemarketing efforts are not limited to residents, and can be directed at business firms too. Since outbound and inbound telemarketing raise different concerns, unless they are clearly specified the resulting regulation will be too broad for practical implementation.

In this paper we will limit the scope of discussion to outbound telemarketing only. Considering technological advances in telephone usage, outbound telemarketing should be defined as any deliberate, unsolicited marketing communication activities conducted through telephone lines to the reception facilities (eg telephone sets, fax machines, computer modems) of new customers. This definition embraces the two major characteristics of outbound telemarketing: that the call is unsolicited and that no prior business relationship exists between the telemarketer and the consumer. So-called ‘cold calls’ in business are outbound telemarketing, since the consumer does not anticipate the communication, which has a business transaction purpose, and the consumer does not know the caller or company before receiving the call. Telemarketers are companies or individuals that regularly solicit new business through the telephone.

Telemarketing as commercial speech

In essence, outbound telemarketing is a form of commercial speech that marketers pay for in the hope of making a business transaction with a consumer. Telemarketing can play two roles in the marketing communication process. As an advertising medium providing information to consumers, the telephone has the advantage of providing a low-cost, two-way interaction between the marketer and the audience. Unlike other advertising media, where messages can be received simultaneous- ly by other audiences, the telephone is a point-to-point medium in which communication is limited to a single person unless the called party is equipped with a special monitoring device or is in a teleconference. Compared to the highly expensive door-to-door personal selling, telephone calls can save a lot of travel expenses for marketers who need interactive marketing communication with the consumer. Consumers feel more secure in receiving information on the telephone than by allowing a stranger to enter their home or office for the purpose of selling. A telephone conversation can also provide immediate feedback to the marketer. In a vast country such as the USA the most economic way for marketers and consumers to interact without travel is through the telephone.

Another important attribute of the telephone as an advertising medium is the consumer’s compulsion to respond to the message immediately.6 The average telephone user cannot screen a call before picking up the handset. Since it exploits consumers’ compulsion to react, telemarketing is often condemned as a nuisance.’ Moreover, telemarketers have a higher chance of reaching consumers than any other media. The consumer’s response is also immediately available to

TELECOMMUNICATIONS POLlCY September/October 1993 541

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‘%entra/ Hudson Gas i? Electric Cop v Public Service Commission, 447 US 557, 100 SCt 2343 65 LEd 341 6MLR 1497, 1960. ‘Paul N. Bloom, ‘A decision model for prioritizing and addressing consumer information problems’, Journal of Public Policy and Marketing, Vol 6, 1969, pp 161-160. loUS Congress, FTC Enforcement of Con- sumer Fraud Law: Hearing before the Sub- committee on Transportation, Tourism, and Hazardous Materials of the Committee on Energy and Commerce, House of Rep- resentatives, 100th Congress, first session, 3 December 1987.

telemarketers. Consumers may hang up immediately or listen to the callers’ sales pitch after picking up the telephone.

The telephone, similar to the mail, is a medium in which the operator (the telephone company) has no control over the message content. Telemarketers can abuse the telephone lines of consumers as much as they like as long as they pay their telephone bills. The telephone company does not have any liability for their customers’ behaviour in telemarketing. Unlimited repeated telephone calls are possible if a telemarketer wishes to persist in reaching a particular telephone user’s household or office. Neither the telephone company nor the user can block unwelcome telephone calls without installing special devices.

There is one unique feature of the telephone as an advertising medium that has been overlooked by both supporters and critics of telemarketing. Unless they are equipped with monitoring devices, receivers cannot track the source or the identification of callers if the latter do not identify themselves. Consumers are in a disadvantaged position compared to telemarketers, who know the consumers they are calling, at least by their name and telephone number. If anything happens, the loser is always the consumer who does not know where the unwanted call came from.

Apart from providing information to consumers, telemarketing also functions as a point of purchase where consumers can place orders. Without written records it is easy for telemarketers to manipulate orders. The consumer may also forget the deal that the caller offered. Arguments may easily arise from this kind of oral transaction. More- over, telemarketers can collect information from consumers over the telephone. If the receiver is a minor or an incautious person, they may be deceived into releasing their personal information or credit card number to professional telephone ‘artists’, as those who possess the communication skills to deceive consumers in telemarketing are some- times known. Indeed, telemarketing is a legitimate means of communication, but is by nature very easily misused.

Since Central Hudson’s four-prong test for commercial speech was established in 1980,* the doctrine of commercial speech has been developed to give protection to the free speech right of businesses, provided that no harm is done to consumers. Government has to demonstrate substantial grounds if it wishes to protect consumers from the harm caused by telemarketing, and must devise the least restrictive measure to advance that protection. In his public policy prioritization model, Bloom has advocated the examination of the degree of harm caused by the marketing communication and the possibility of self- correction under a laissez-faire system.’ If we wish to consider regulating telemarketers, we must first examine the harm that telemarketing has caused to consumers. Telemarketing fraud has cost the US public more than $1 billion a year and the Federal Trade Commission receives over 37 000 complaints about te1emarketers.l’

Abuses of outbound telemarketing have become a major issue on the agenda of the Congress and the state legislatures in the USA. Many bills and acts have been proposed to regulate telemarketing abuses in recent years. The Telephone Consumer Protection Act of 1991 represents the cumulative concern over outbound telemarketing abuses. Invasion of privacy and fraud are two major issues arising from the abuse of outbound telemarketing. Privacy concerns the mental harm or annoyance to the public, while fraud addresses monetary loss. Current-

542 TELECOMMUNICATIONS POLICY September/October 1993

“Direct Marketing Association, ed, Tele- marketer’s Guide to State Laws, Direct Marketing Association, Washington, DC, 1992.

‘*Schuster v State, 450 SW 2d 616,197O. 13See State v Dronso. 901 NW 2d. 710. 1979, and Planned P&enthood Lea&G Attorney General, 464 NE 2d 55, 1964. 14Sofka v Thai, 662 SW 2d 502, 1963.

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ly, outbound telemarketing is regulated by state laws in the USA. There are five types of telemarketing laws. The first three deal with privacy matters only, and the remaining two are directed against fraud:

Asterisk (Do not call) laws: Telemarketers cannot call individuals or households who mark in the telephone directory their unwillingness to receive telemarketing calls. Automatically dialled recorded message players: Telemarketers are either restricted or not allowed to use automatically dialled recorded message players to make their calls to consumers. Monitoring of telephone calls: There are regulations governing the recording of conversations during telemarketing calls. They mainly serve to protect the privacy of the telemarketing employee rather than the consumer. In most states that have such a statute, telemarketers must obtain the prior consent of their employees before they can monitor conversations. Home solicitation: These are rules that apply to telemarketers soliciting business from consumers at home. Telemarketers are required to disclose their identity, and to provide a mandatory cooling-off period during which the buyer may cancel the transaction and secure the return of their down payment. Home solicitation statues in some states also regulate the form of agreement and the terms of modifying the buyer’s rights in telemarketing. Registration: Before making business solicitation calls, telemarketers have to provide the Consumer Protection Section of the State Department of Justice with information on their products and services, their employee list, how they made the telephone calls, prize or gift offers, advertising literature and calling scripts.

The privacy paradigm

The focus of these telemarketing laws is the invasion of privacy. Of the 49 states that provide some kind of regulation on telemarketing, 44 regulate the monitoring of telemarketing calls and 40 regulate automatic dialling. Though home solicitation is regulated in 36 states, the degree of restriction varies greatly from mere identification disclosure to detailed rules governing transactions. Registration, which is the most stringent rule among the five categories of regulations on telemarketers, is applied in 14 states only.” The privacy paradigm concerns the compulsion to react to the telephone and its exploitation to invade the privacy of consumers. Under the privacy paradigm telemarketers are assumed to be aiming at household residents only; business-to-business telemarketing cannot be included because individuals at work have no privacy.l* US courts have employed the time, place and manner test to resolve cases involving allegations of telephone callers’ intrusion into the private domain of individuals. Generally, the courts are cautious in applying regulations that restrict the making of telephone calls. The government has to demonstrate substantial interest in residential privacy and must employ the least restrictive means in its statutes to avoid being accused of violating the First Amendment rights of the telephone caller.13 Only when the conduct of the telephone caller is causing significant harm will a telephone call constitute an invasion of privacy or nuisance. l4 Courts have up held the constitutionality of the law that criminalizes anonymous telephone calls made with the intent to annoy, abuse, threaten or harass, as a measure to protect the individual’s

543

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15State v Patterson, 534 SW 2d 847,1976, and State v Elder, So 2d 687, 1980. lsNader v General Motors Corp, 25 NY 2d 560,197o. “US Congress, ‘Telephone Consumer Protection Act of 1991’, S1462, US Code Conaressional and Administrative News, 199i. “US Congress, The Scourge of Tele- marketina Fraud: What Can be Done against i?, 102nd Congress, 18 Decem- ber 1991. laUS Congress, Telemarketing Fraud Pre- vention Act of 7988: Report (to accompany HR 4101). 20E. Wissenstein, ‘Taking on the tele-scam - two approaches’, Advertising Age, Vol 62, 18 February 1991, S6. 21E.M. Faro, ‘Telemarketing credit card fraud: is RICO one answer?‘, University of ;Fc;s$w Review, Summer 1990, pp

=K. Setrand, ‘Toner phoner con artists ringing up more victims’, Business Market- ino, Vol 75, September 1990, p 18. ‘“GS Congress, FTC Enforcement of Con- sumer Fraud Law: Hearina before the Sub- committee on Transposation, Tourism, and Hazardous Materials of the Committee on Energy and Commerce, House of Rep- resentatives, 100th Congress, first session, 3 December 1987. “US Congress, Telemarketing and Con- sumer Fraud and Abuse Prevention Act: Report of the Senate Committee on Com- merce, Science, and Transportation, 26 July 1990.

privacy. l5 The content of the telephone call is seldom a factor considered in court cases unless the information sought over the telephone was confidential and the defendant’s conduct was unreasonably intrusive. I6

The invasion of consumers’ privacy and the concern over the time, place and manner of telemarketing persist as features in recent propos- als to restrict outbound telemarketing. The technical distinction between a living person and an automatically dialled recorded message has been incorporated into almost all the telemarketing regulations of every state in the USA. The rationale for preferring a living person is that he or she is less likely to call at an unreasonable time or an inappropriate place. Consumers are also presumed to prefer to talk to a person instead of a machine over the telephone. Extension of the restriction from telephones to fax machines is also based on the intrusion upon the normal business operation of the fax machines’ owners represented by junk fax. l7 The Telephone Consumer Protection Act, passed in Decem- ber 1991, reiterated the concern of the Congress over the increasing use of automatic dialling devices. These automated calls interrupt the operation of business and emergency services and disturb individuals who have already indicated their unwillingness to receive telemarketing calls.

The fraud paradigm

The US government has estimated that it has lost $3-15 billion in tax revenues to fraudulent telemarketers. l8 Individually, victims of telemarketing frauds may not lose a large amount of money. However, the aggregate amount lost is more than $1 billion to the US public every year, and the situation is worsening. l9 This became a national concern when the Telemarketing Fraud Prevention Act was proposed in 1988. The telemarketing scam, in which a fraudster uses telephone calls to obtain credit card information from householders, is the latest subject of criticism levelled at telemarketing.20 Telemarketing racketeers work in ‘boiler rooms’ (cheap offices filled with telephone lines), move fre- quently to avoid being arrested, and employ ‘artists’ to solicit credit information from consumers.21 Another type of fraud is business-to- business calls such as the ‘toner phoner’ case, where small businesses were trapped into buying toner for much more than the regular price.22 The Federal Trade Commission has played an important role in investigating telemarketing frauds, which are mostly interstate cases. In 1987 they received 37 000 complaints about 268 marketing firms.23 US courts have been highly consistent in their rulings on fraud cases because the legal justification of monetary loss is much clearer in fraud cases than any equivalent in the case of privacy invasion. However, litigation against telemarketing fraud has not been effective in deterring outbound telemarketing racketeers. The increased use of outbound telemarketing on an interstate basis brought the issue to national attention with the Telephone and Consumer Fraud and Abuse Preven- tion Act of 1990.24

The telemarketing industry is also concerned about the abuse of outbound telemarketing by racketeers. The political climate is becom- ing more and more unfavourable to their operations as regulations governing telemarketing are tightened. The increasing numbers of consumer complaints have lowered telemarketers’ credibility. The


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industry is trying to regulate itself by means of the Direct Marketing Association Guidelines for Telephone Marketing. These guidelines consist mainly of the ethics of honesty and courtesy in making telephone calls to facilitate consumers’ acceptance of outbound telemarketing calls. The Direct Marketing Association also offers a Telephone Prefer- ence Service to consumers, who can request fewer telephone calls. The list of such consumers is available to all telemarketers. Despite these efforts, only 20 members of the association follow the guidelines, and the majority of telemarketers work in their own way.25

Two federal agencies are concerned with the different abuses of outbound telemarketing. The Federal Trade Commission has been designated to deal with fraud cases, and a congressional hearing has been held on its effectiveness in protecting consumers from telemarketing fraud. The Luken Bill, revised in 1989, called for comprehensive regulation of telemarketing fraud, but was turned down as it would restrict free trade. The Federal Communications Commission, on the other hand, regulates the conduct and technical aspects of telemarketing to protect the public from annoyance caused by automatic dialling and junk fax.

Unresolved regulatory issues

All the extant state and federal regulations on telemarketing are remedial in nature. Consumers have to file complaints to the state attorney at the state level, or the FTC and FCC at interstate level, to obtain compensation from defendant telemarketers. It may take years for consumers to gain compensation for their mental suffering or to recover monetary loss. The cost of litigation may be so high that it would not justify consumers to spend the time and money in pursuing a case. The penalty provisions in the regulations may deter racketeers and can serve as the basis for a plaintiff to seek redress. However, telemarketers can easily escape from legal action by moving from one state to another or by changing names. Legislators and policy makers are faced with a choice between remedial and preventive measures to reduce the occurrence of telemarketing abuses.

Application of RICO (the Racketeer Influenced and Corruption Organizations Act) in telemarketing credit card fraud lawsuits is an example of a remedial orientation.26 Offered an incentive of claiming three times their monetary loss, victims are encouraged to bring lawsuits against racketeer telemarketers. Despite such lucrative compensation, remedial measures are still a cumbersome way for the average consumer to take action against a racketeer telemarketer. We know that the victims of telemarketing are mostly less educated and younger consumers who are prone to accept telemarketing calls.*’ They feel ashamed to report being deceived. 28 They are a vulnerable group that requires preventive measures to protect them from the harm caused by telemarketing malpractices. Preventive measures are thus superior to remedial measures in dealing with telemarketing abuses.

Under the remedial approach the courts have to handle tons of cases alleging violations of state regulations. But the enforcement of these regulations should not be the function of the courts. An administrative agency could determine the compensation for telemarketing abuses by administrative decision. It could take over part of the courts’ burden. The processing of cases would be much quicker and racketeers could not take advantage of long legal procedures.

*5$3. Fannin, ‘Answering the call for re- form’, Marketing and Media Decisions, Vol 23, July 1999, p 24. =Faro, op tit, Ref 21. *‘Bob Stone and John Wyman, Successful Telemarketing, 2nd edn, NTC Business Books, Chicago, IL, 1992. ?JS Congress, op tit, Ref 18.

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Balancing the interests of willing and unwilling recipients of outbound telemarketing calls is also an unresolved issue in telemarketing regulation. When privacy is emphasized, the standard may be so stringent that even willing consumers cannot receive telemarketing calls. For example, under the ‘with asterisks’ (do not call) laws, consumers indicate their unwillingness to receive telemarketing calls, but this unwillingness may be based upon past experiences of nasty or fraudulent telemarketing calls. If credible telemarketers sell products courteously with special offers that are of interest to consumers, consumers may change their mind. In a national consumer study conducted in 1989, acceptance of incoming telemarketing calls increased from 13% to 47% when the calls contain all the six attributes of a good telemarketing ca11.31 A general indication in the telephone directory that one does not welcome telemarketing calls will rule out the possibility of receiving desirable telemarketing calls. Standardizing the hours of solicitation also ignores individual differences in living habits. People working on shifts and housewives, for example, have different desirable telephone hours from people in other professions. 32 If automatically dialled recorded messages are banned, consumers will be limited to communicating with live telemarketers, which is much more costly - and the cost will be passed on to the consumer.33

%S Congress, Telemarketing Fraud: Hearing before the Subcommittee on the Consumer of the Committee on Com- merce, Science, and Transportation, second session on S 2213 and HR 4101, 13 September 1988. 3oUS Congress, The Nature and Extent of Telemarketing Fraud and Federal and State Law Enforcement Efforts to Combat It: Hearings before the Commerce, Con- sumer, and Monetary Affairs Subcommit- tee of the Committee on Government Op- erations, House of Representatives, 101 st Congress, second session, 11 and 12 July 1990. 31Sfone and Wyman, op tit, Ref 27. The six attributes, in order of importance, are (1) professional and courteous sales- manship, (2) live person, (3) reputation of the company, (4) convenient time, (5) interest in the product, (8) pleasant previous ex$ence with the company.

=Ann Marie Arcadi, ‘What about the lucky leprechaun? An argument against the

traditional approaches of privacy or fraud, there will be more and more

Telephone Consumer Protection Act’, Co/- regulations on different aspects of telemarketing activities. Based on umbia Business Law Review, 1991, pp privacy and fraud, current measures have been ineffective in achieving 417-432. 34Nadel, op cil, Ref 8.

their goal of protecting consumers. These regulations try to protect

35See Felix Kent, ‘Regulation of tele- consumers from harm, but in the process the free speech rights of marketing’, New York Law Journal, 23 telemarketers are undermined. We should first address the fundamental

The final issue is, where should the burden arising from regulation be put - on the consumer or the telemarketer? Some advocates of individual privacy and preference propose to put the burden on the consumer: consumers must pay either telephone list suppliers or the telephone directory publisher to indicate their preference in receiving telemarketing calls, or they must install new technological devices to screen calls.34 On the other hand, those most concerned with telemarketing fraud propose to put the burden on telemarketer by imposing more regulations to restrict their activities.35

Telephone lines as consumer property

If we continue to tackle outbound telemarketing abuses by following the

Confusion over the roles of state and federal governments in regulating and prosecuting telemarketing abuses is another problem. In many interstate cases, duplication of investigation by several states and the FTC wastes resources.29 No one assumes responsibility for coordinating state and federal investigations.30 Under the Telephone Consumer Protection Act, the federal government cannot pre-empt state laws in prosecuting telemarketers. Nevertheless the FCC is responsible for monitoring the technical standard of automatic-dialling systems and fax machines. The increasing numbers of interstate cases demand a uniform national legal standard. It thus seems that the federal government must assume a greater role in regulating telemarketing.

Septemb& 1988, p 3; and Richard Edel, ‘Legislatures clamping down on tele-

issue of the philosophical basis for consumer protection before propos-

marketers’, Advertising Age, Vol 57, 8 ing any further regulation of telemarketers. Which rights of the consum- March 1988, p 18. er have telemarketers infringed? What is the extent of the harm that


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necessitates regulation of outbound telemarketing in particular? It is suggested here that the rationale for regulation should be based on a property conception of telephone lines, instead of focusing on consumers’ right to privacy and the monetary harm caused by telemarketing fraud.

The notion of the telephone line as a property of the subscriber has its roots in the opposition to junk fax. The telephone line serving the fax machine is tied up by useless advertising fax, affecting normal business functioning. Nonetheless, telephone lines have usually been thought of as the property of telephone companies rather than telephone service subscribers. Technically speaking, telephone companies own and operate the telephone system. They assign telephone lines to their subscribers. One and only one telephone number will be assigned to a telephone set. By this assignment, subscribers obtain the exclusive right to use the telephone line with their telephone number. Other telephone users have to seek their implicit or explicit consent to use their telephone line to make outbound calls. For inbound calls, only those who dial their particular telephone number will be able to use their telephone. Such exclusivity and selectivity of a telephone line (represented by the telephone number) as belongs to a particular subscriber constitutes a property. 36 The telephone service subscription fee that subscribers pay also signifies their ownership of the telephone line during the subscription period.37

Telephone lines are either in service, or not in service, but not both at once. If a person is using the telephone, the line is engaged and no one can get onto it until that person hangs up on the existing call or employs a call-waiting device. In outbound telemarketing, telemarketers’ calls will temporarily occupy the vacant telephone line of the consumer. Since all outbound telemarketing is by definition unsolicited and consumers have no prior knowledge of the caller, their calling in has not gained the prior consent of the consumer. Their occupation of the telephone line will inhibit the consumer’s ability to make outbound calls or receive other inbound calls. A good becomes a property when joint use of the good is inefficient and harmony can only be achieved through moral obligations and time limits.38

Outbound telemarketers’ potential infringement of consumers’ property right to their telephone lines is similar to ringing the doorbell of an apartment dweller. The visitor (the telemarketer) cannot use the argument that the tenant (consumer) did not build or buy the building (telephone line), therefore he or she has no right to refuse entry. A stranger may manage to get into an apartment by force (equivalent to repeated dialling until a consumer’s line is not engaged). This act of breaking into the apartment constitutes trespass upon the tenant - an unlawful interference with the enjoyment of personal property rights.39 The trespass is against the land property rights of the tenant because the tenant has made a contractual agreement with the landlord for the exclusive use of the apartment during a given time period. What if the

36Boudewijn Bouckaert, ‘What is proper- tenant agreed to let the stranger enter? In that case the tenant is

ty?‘, Harvard Journal of Law and Public exercising his property rights by granting the stranger temporary use of

Pdicy, Vol 13, No 3, 1990, pp 775-930. his apartment. With such prior consent, the stranger’s entrance will not 37M. Weinstein, Summary of American Law, Lawyers Cooperative Publishing Co,

be considered an infringement of the tenant’s property right. However,

New York, 1999. we do not know under what circumstances a stranger may be welcomed.

%oukaert, op tit, Ref 36. The ultimate decision to accept a stranger rests with the tenant. We still 39Weinstein, op tit, Ref 37. need the law of trespass to protect the tenant from being intruded upon


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4oUS Congress, op cif, Ref 1.

548

by strangers. The stranger’s time, place and manner are not of concern under the conception of property rights. As long as he breaks into a tenant’s apartment without prior consent, he has already infringed the property rights of the tenant and is liable to prosecution.

By the same token, if we adopt the view that a telephone line is a property of the consumer, whether in the office or at home, no matter how good the manners of the telemarketer may be, as long as he deliberately dials the telephone number of the consumer without prior consent, he is running the risk of infringing the consumer’s property rights. We do not mean that a stranger cannot visit a tenant, or that a telemarketer cannot conduct business on the telephone. However, the compelling need to make an immediate response and the interactive characteristics of the telephone as a medium require us to provide guidelines to ensure that telemarketers develop their business with consumers’ property rights in mind.

What will be the harm to consumers if their property rights are neglected in telemarketing ? Apart from the mental suffering and monetary loss that have been shown in the privacy and fraud paradigms, consumers lose time in receiving telemarketing calls and their right to use the telephone lines for the duration of the unsolicited calls. Every day thousands of hours are taken away from the 18 million consumers who receive unrestrained telemarketing calls, and important business operations and private communications are affected.40 If telemarketers are free to trespass upon the telephone line property of consumers, then consumers will continue to be subject to the abuses of both honest and fraudulent telemarketers. The situation will only grow worse as telephone technology moves towards easier dialling and automatic location of receivers, which further facilitate trespass. Outbound telemarketers will unavoidably tie up the consumers’ telephone lines. To resolve this conflict without depriving telemarketers of their rights to do business, the best solution would be to control the volume of telemarketing activities by limiting the number of telemarketers and the number of calls they may make. The basis for such limitation should be a publicly accepted standard of practice. When telemarketers follow the standard of practice, they will be given the right to operate their business.

The proposed view of telephone lines as the property of the consumer should be the guiding principle for any regulation of telemarketing. As a principle, property right is much clearer and more consistent than privacy, which is vague and subjective, and its application is much broader than fraud, which focuses only on the monetary harm aspect of telemarketing malpractice. Yet it is not so broad as to encompass other media, with a consequent inhibiting effect upon other forms of commercial speech, because the telephone line as a property is unique to the telephone as a communication medium. Unlike other advertising media, in which advertisers pay directly for space, the telephone is a utility paid for solely by the consumer for interpersonal communications. In traditional advertising media, the consumer expects to receive advertisements alongside the editorial content because advertisers have subsidized the production of the medium with their advertising. Tele- marketing is also different from direct mail because consumers’ mail- boxes can hold multiple mailings and there is no compelling need for the consumer to open each letter. Telemarketers do not sponsor consumers by paying their telephone bills; consumers therefore have no obligation or expectation of receiving telemarketing calls. An outrageous applica-

TELECOMMUNICATIONS POLICY September/October 1993

41Connie Lauerman, ‘Now it’s death and taxes . . and unsolicited commercial phone calls’, Chicago Tribune Magazine, 24 November 1991, pp 20-27. 42Faro, op tit, Ref 21. -Andrew D. Lipman, ‘Industry laws: FCC moves to establish regulatory framework for telemarketers’, Telemarketing, Vol 10, June 1992, pp 4247. “Leah Fliter, ‘FCC Commissioner addresses DMA regarding pending rulemaking’, Tekmarketing, Vol 11, August 1992, pp 19-20. 4%.A. Meyerowitz, ‘States crack down on tetemarkettng’, Business Marketing, Vol 72, August 1986, p 6. 4@lJS Congress, FTC Enforcement of Con- sumer Fraud Law: Hearing before the Sub- committee on Transportation, Tourism, and Hazardous Materiels of the Committee on Energy and Commerce, House of Rep- resentatives, 100th Congress, first session, 3 December 1987. 47Ame&an Jurisprudence, Lawyers Coop- erative Publishing Co, New York, 1973.

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tion of the property rights concept is the recent formation of Private Citizens’ Inc, a group that charges telemarketers for their calls to its members. Telemarketers must pay US$lOO to each unwilling recipient of their telemarketing calls. Telemarketing calls to members of Private Citizens Inc have dropped by 75%.41

Licensing of telemarketers

Having adopted the view that consumers have property rights over their telephone lines, we need to develop a measure that protects them from the abuses of outbound telemarketing while supporting legitimate telemarketers. This is in line with the thinking behind the Telephone Consumer Protection Act of 1991. Since telephone calls have such an irresistible nature, remedial measures will never be able to protect consumers from telemarketing racketeers. Licensing of telemarketers is proposed as an efficient preventive measure.

It is possible to consider imposing more technical requirements on the reception facilities of telemarketers or consumers, such as call-screening devices, but this would increase the costs of operation for telemarketers, and the telephone expenses of consumers would also increase. The technological race between the two parties would benefit only the manufacturers of the new devices, not the consumers or telemarketers. To avoid this type of technological race, it seems inevitable that certain restrictions must be put on market entry to reduce the overexpansion of the number of telemarketers operating on the same pool of consumers.

Other types of regulations such as the ‘with asterisks’ (do not call) laws are of limited use as the sources of telephone lists used by telemarketers are so diverse that consumers cannot place their preferences on every list. 42 Another alternative proposed by the FCC is the employment of network technologies to allow subscribers to block telemarketing calls and a compulsory assignment of a particular telephone prefix to telemarketers.43 All such propositions overlook the fact that consumers’ preferences concerning telemarketing calls may change as a result of the credibility, conduct and inducements offered by telemarketers. They deny legitimate telemarketers’ right to establish first contact with consumers.44

It may be argued that we can use registration to keep track of telemarketers, as some states have done, instead of the more stringent measure of licensing. The failure of registration laws to prevent telemarketing abuses shows that registration is not coercive enough to deter malpractices. Despite being armed with registration laws, Califor- nia and Indiana ranked second and third among states receiving the most consumer complaints about telemarketing frauds. California brought 60-70 actions against companies that did not register, and the unregistered companies responded by leaving the state. Of those which did register, 500 were violators of the telemarketing statutes.45 Ironical- ly, other populous states such as Ohio and Texas, which have no registration law, received fewer complaints of telemarketing fraud.*

In making a choice between registration and licensing, we have to understand the different legal natures of these two measures. Registra- tion is a symbol of ownership and aims to protect the registered owner against all claims or demands not listed in the book for registration of titles. No standard of practice is required of the registered owner. Due process can be denied to applicants.47 Licensing is the granting of a

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special privilege to the licensee, who is then entitled to do something that he would not be able to do without the licence. There are always restrictions and conditions imposed on licensees. Licences will only be issued to an occupation or a business whose transactions are conducted regularly. The purpose of licensing is to protect the public against such dangers as ignorance, incompetence and fraud in the practice of the licensee. A constitutional due process requirement is needed for processing licence applications.48 When a telemarketer is licensed, this implies that his business is recognized as a privilege that not everyone can enjoy. In return, he must comply with a standard of practice that protects the consumer from fraud, nuisance, or whatever harm his activities may cause. He pays a licence fee to register and enjoy this privilege. The implicit endorsement granted by the licenser to the licensee also increases the licensee’s credibility in the eyes of the public.

Licensing of telemarketers articulates consumers’ property rights. Licensed telemarketers are given the privilege of operating their business because they are obliged to respect consumers’ property rights by complying with the licensing rules. These licensing rules could incorporate the self-regulatory guidelines of the Direct Marketing Association. All licensed telemarketers would be assigned a special prefix on their telephone numbers. The standard licensed telemarketer must identify himself, the name of the company, his licence number and a toll-free return telephone number and address when making any outbound telemarketing telephone calls. If a consumer has rejected his solicitation, he must not make repeat calls to the same telephone number with the same offer. Moreover, when exercising his licence privilege, the number of telephone calls a telemarketer can make may be restricted to a level that will not create annoyance to consumers. Otherwise, his privilege will be revoked. Through the licensure a government agency records all set-up information about and products offered by the licensed telemarketer. If the agency received a complaint from a consumer, it could immediately investigate the files of the licensee. Consumers could recognize licensed telemarketers through a published list such as the telephone directory which could also repro- duce the rules governing the licence.

The primary objective of licensing telemarketers is to weed out illegitimate telemarketers and protect consumers’ telephone line property rights. A secondary objective is to improve the standard and image of the telemarketing industry. Telemarketers who wish to be in the business must follow the licensing rules, which lay down basic standards of practice. With the due process requirement, every telemarketer who complies with the standard of practice will be granted a licence, just as licences are issued to liquor and cigarette sellers. Professional training programmes on the standards of practice of telemarketers must be developed to accompany licensing to foster the long-term improvement of the industry. Consumers need to be educated by means of a national advertising campaign to identify licensed telemarketers and verify their licence before releasing any information.

The suggestion that telemarketers be licensed by an administrative agency implies a delegation of judicial power from the courts which can find constitutional support. 49 It would relieve the court from an

?bid. 49K C Davis, Administrative Law and Gov-

unnecessary burden in dealing with routine cases of telemarketing

em&r, 2nd adn, West Publishing, St abuses. The preventive nature of licensing would reduce litigation costs Paul, MN, 1975. because only under exceptional circumstances would the licensee risk


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his licence by violating the rules. But what if unlicensed telemarketers make calls to consumers? After the education campaign, consumers should be able to identify unlicensed telemarketers who cannot provide them with their licence information. Consumers should turn in these unlicensed telemarketers to the agency for prosecution.

Licensing could be viewed as a measure to restrict the market entry of potential telemarketers. Certainly, not everyone would be granted a licence, and the number of telemarketers would decrease as a result of licensing. Each individual would be given a chance, if they were willing to comply with the licensing rules. The licensing fee structure should be based on the sales volumes of the telemarketing firms. The larger the telemarketing firm, the more it would need to pay for a licence, provided that the fee did not pose a cost barrier to market entry. Licensing restricts market entry only by setting a minimum standard of practice. However, firms should recognize that telemarketing is just one of the many marketing techniques that they can use to promote or sell their products or services. If a firm finds licensing too inconvenient or restrictive, it can choose other interactive marketing techniques that will not violate consumers’ property rights, such as mail order or direct response advertising on TV. Outbound telemarketing is not the only way to conduct business. It might seem that licensing would discourage the development of telemarketing. On the contrary, it would promote the development of the industry through the official endorsement of licensed telemarketers. Because the licensing rules would support quality telemarketing practices and inhibit malpractices, consumers would become more receptive to legitimate telemarketers. It would increase telemarketers’ credibility and reverse the negative public image created by the various abuses of outbound telemarketing.

In drafting the licence rules, the administrative agency should consider issuing two types of licence: one for regular business, and one for a specified short period since some companies only use telemarketing techniques as an ad hoc tactic. The trade’s standard of practice and code of conduct should be the same for both types of licence, but the process of obtaining a short-term licence should be faster to allow more flexibility for occasional telemarketers to use the technique legitimately.

A major provision in the licensing rules will be the conditions for revocation of the licence. The licensee must know what constitutes a violation of the licence rules and the consequences of revocation of the licence. These conditions will be the basis for enforcement of the rules on licensed telemarketers. They must be consistent, and case-by-case negotiation must not be allowed. Otherwise, the whole purpose of licensing will be jeopardized as the regulations become too responsive to the parties involved.50

The proposed agency should be sunset in nature, meaning that it would last only for a specified period of time, after which its existence would be up for review. Tentatively, it is proposed here that the term for such an agency be five years to allow sufficient time to bring the industry on track and educate consumers on their rights. The agency should be endowed with the following powers:

“S. Silbey, ‘The consequences of respon- l to provide consumers with education on their rights in telemarket- sive regulation’, in K. Hawkins and J.M. Thomas, eds, Enforcing Regulation,

ing ;

Kluwer-Nijhoff, Boston, MA, 1964, pp 145- l to foster a code of practice and raise the standard of telemarketing; 166. l to process applications and enforce licensing rules;


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0 to prosecute unlicensed telemarketers and revoke the licence of delinquent licensees;

l to investigate consumer complaints about outbound telemarketing.

Once the licensing rules have been firmly established and are being put into practice by licensed telemarketers, the sunset agency might give way to a private agency run by the trade association of telemarketers, similar to the bar association or the medical association. A qualifying exam for telemarketers may be needed once a professional training programme for telemarketing has become well developed. By that point the government will be able to exercise minimal intervention and the telemarketers will be showing self-discipline over their work and a high standard of practice in their telemarketing activities.

The licence fees collected should be allocated to two parties. The running costs of the agency should be fully absorbed; and the remainder of the revenue should be used to pay a small percentage of the telephone bills of consumers who have granted telemarketers the right to use their telephone lines. The appropriation of such sponsorship should be in proportion to the revenues generated in each state. For example, if Michigan generates 10% of the revenues, then the telephone companies in Michigan will receive 10% of the revenue from the licence fee after deducting the agency’s expenses. The telephone company will then deduct the amount from subscribers’ bills in equal shares divided by the total number of telephone users, excluding those who state their unwillingness to receive any telemarketing calls.

Cost-benefit analysis of licensing

What are the benefits of licensing? All telephone subscribers will enjoy protection from the harm posed by telemarketers. Their property rights are being acknowledged. Both household residents and individuals working in offices will be protected under the conception of property rights. Consumers who are willing to receive telemarketing calls will benefit from a subsidy of their telephone bills from the licence fee. They will be able to enjoy the convenience of telemarketing with licensed telemarketers who have to comply with a standard of practice. To policy makers, property rights over telephone lines can serve as a guideline for policies towards telemarketing that may need to be developed in response to the future technological development of the telephone medium. No matter how technology develops, telemarketers must observe the property rights of consumers. Licence rules can be adjusted according to technological development.

The most salient benefit of licensing is that it can provide an effective enforcement mechanism to penalize violators. Control of legitimate telemarketers will be easy once there is a national database of licensees and the power exists to revoke licences. Centralized licensure simplifies the prosecution of both interstate and intrastate cases. Racketeers will no longer be able to take advantage of differences in state laws by moving their offices. When it comes to unlicensed telemarketers, consumers will play a key role by turning in telemarketers who cannot provide licensee identification. Moreover, unlicensed telemarketers will find it difficult to win business after the proposed education campaign because they will be rebuffed by consumers. Small telemarketers will benefit from government endorsement, and from the generally greater social acceptance of telemarketing. In their initial contact with consum-


5’US Congress, op tit, Ref 18.

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ers, they will not be disadvantaged against big companies because consumers will need to place less reliance on company reputation in deciding whether to accept telemarketing calls. The fee structure will not create unfair competition between big telemarketers and small telemarketers as long as they can comply with the standard of practice. Licensing also encourages telemarketers’ commitment to telemarketing because gaining a licence is a privilege, so telemarketers will maximize their business by upgrading their service or product offerings.

Of all forms of regulation, the cost of licensing is the lowest because the burden is put on the licensee and the scheme is revenue-making from the government’s point of view. In the case of telemarketing, the burden falls upon the telemarketers who enjoy the privilege of being licensees and making their profits in a ‘clean’ environment. Consumers, by buying the products or services of licensees, pay indirectly to cover the cost of the regulations. The initial running cost of the agency may seem formidably high considering its staffing requirements, the need for branch offices in each state, the maintenance of a national database and the consumer education campaign. Based on the US$43.5 billion annual sales volume of telemarketing, we might propose 0.01% of the sales volume as the licence fee of each telemarketing firm; each year the revenue generated from the licence fee would then be $43.5 million, which should suffice to cover the cost of the licensing programme. This analysis does not include the tax revenue, estimated to be $3-15 billion, which could be collected from licensed telemarketers under the licensing programme, or the savings in the cost of litigating fraudulent and privacy intrusion cases in court. The additional cost to telemarketers of this licence fee can be viewed as an investment in higher consumer acceptance, which can then be translated into more sales.

The licensing of outbound telemarketers is offered as a fair comprom- ise between the interests of telemarketers and consumers. Consumers’ property rights in telephone lines are recognized and compensated by the licensee’s sponsorship of telephone bills. Legitimate telemarketers also benefit from the creation of a favourable business environment and the casting out of the racketeers who are damaging the credibility of the industry. Improved performance by telemarketers can be expected from the compliance rule, and the chances of consumers being abused by delinquent outbound telemarketers will be minimized. Finally, unload- ing a burden from the courts onto an administrative agency will lead to more efficient enforcement of the standards of practice in outbound telemarketing.

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