No. 98-9518
FOR THE TENTH CIRCUIT
Petitioner,
and UNITED STATES OF AMERICA,
Respondents,
AND SUGGESTION FOR REHEARING EN BANC
__________________
|
DAVID W. OGDEN |
CHRISTOPHER J. WRIGHT |
|
MARK STERN |
JOHN E. INGLE |
|
U.S. Department of Justice |
LAUREL R. BERGOLD |
|
Federal Communications
Commission |
AND SUGGESTION OF REHEARING EN BANC
The Federal Communications Commission and the United States respectfully ask for rehearing by the panel or by the Court en banc. This case involves questions of exceptional importance affecting governmental efforts to protect the privacy of telephone customers and to promote competition in the telephone industry. The majority decision expands the reach of the First Amendment to protect the commercial exploitation by telephone companies of sensitive personal information about the calling habits of millions of subscribers, most of them captive customers who have no alternative to their telephone companies' monopoly service.
The majority, on First Amendment grounds, vacated rules adopted by the FCC to implement a statute limiting the commercial use that telephone companies can make of private customer information that the companies collect in the course of providing service.1 In reaching that holding, the majority failed to address the threshold fact that this information belongs to the customers and not to the telephone companies, and the argument that the companies thus have no right -- First Amendment or otherwise -- to use it outside the limited scope of the implied customer consent under which they obtained the information. This information -- collected for billing and network planning purposes -- consists of the calling records of individual customers, and it necessarily reveals private data about those customers' business and personal
1 U.S.West, Inc. v. FCC, 182 F.3d 1224 (1999).
relationships, and their work and travel habits and schedules.2 It is, in short, the kind of private information that people ordinarily do not share readily. Discounting the overriding interest of customers in controlling the use of their personal information, the majority found the case to involve restrictions on the telephone companies' commercial speech. The majority purported to analyze the FCC's rules under the test set forth in Central Hudson-Gas & Electric Corp. v. Public Service Commission of New York, 467 U.S. 557 (1980).
At that point, the majority incorrectly applied the commercial speech standard of Central Hudson, as the dissenting opinion makes clear. The majority failed to identify and evaluate properly the governmental interests that justify the FCC’s rules, and as a result it found incorrectly that the rules did not materially advance those interests. And, ignoring the careful and effective efforts the FCC had made to tailor its rules narrowly to further the identified interests, it held that the FCC had failed to justify its regulations.
Customer proprietary network information ("CPNI") is information about individual telephone customer calling patterns and habits -- such as whom a customer
2 'This data, "can be translated into subscriber profiles containing information about the identities and whereabouts of subscribers' friends and relatives; which businesses subscribers patronize; when subscribers are likely to be home and/or awake; product and service preferences; how frequently and cost-effectively subscribers use their telecommunications services; and subscribers' social, medical, business, client, sales, organizational, and political telephone contacts." Order, 13 FCC Rcd at 8109 (¶ 61).3 Dissent, 182 F.3d at 1240.
calls, where, how often, for how long, and when. Telephone companies collect CPNI in the course of providing service, for billing and network planning purposes.
In 1996, Congress comprehensively amended the Communications Act by adopting the Telecommunications Act of 1996, Pub. L. No. 101-104, 110 Stat. 56 ("1996 Act"), to create a "pro-competitive, deregulatory national policy framework" for telephone and related services.4 Section 222(c)(1) of the 1996 Act specifies:
Except as required by law or with the approval of the customer, a telecommunications carrier that receives or obtains customer proprietary network information by virtue of its provision of a telecommunications service shall only use, disclosure, or permit access to individually identifiable customer proprietary network information in its provision of (a) the telecommunications service from which such information is derived, or (b) the services necessary to, or used in, the provision of such telecommunications service, including the publishing of directories.
47 U-S.C. § 222(c)(1).5 Section 222(c)(1) both codifies and strengthens preexisting CPNI safeguards adopted by the FCC.6
In the rulemaking on review, the FCC found that the purpose of Section 222 is to balance "competitive and consumer privacy interests with respect to CPNI."7 The
4 H.R. Conf. Rep. No. 104-458, 104th Cong., 2d Sess. (1996) at 1.5 Notwithstanding Section 222(c), Section 222(d) permits a carrier to use, disclose or permit access to CPNI (1) to initiate, render, bill or collect for the carrier's telecommunications service, (2) to protect the rights or property of the carrier, (3) to prevent fraudulent, abusive, or unlawful use of service, and (4) to provide inbound telemarketing, referral, or administrative services to customers. 47 U.S.C. § 222(d).
6 E.g., Customer Premises Equipment, 102 FCC 2d 655 (1985) ("CPE").
7 Customer Proprietary Network Information, 13 FCC Rcd 8061, 8089, 8090-91, 8132 (¶¶ 37, 39, 94) (1998) ("Order") (quoting Joint Statement of Managers, S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess, 205 (1996) ("Joint Explanatory Statement"), recon., FCC 99-223 (released Sept. 3, 1999), erratum (Sept. 23, 1999).
FCC held that Congress intended to protect privacy by giving customers control over the use of their CPNI. 13 FCC Rcd at 8065, 8101 (¶¶ 3, 53). The FCC also determined that Congress sought to promote competition by restricting the ability of carriers to "leverage their control of CPNI in one market to perpetuate their dominance as they enter other service markets." Id. at 8089-90 (¶ 37). See id. at 8090 (¶ 39).
The FCC construed the phrase "approval of the customer" in Section 222(c)(1) to require a carrier to obtain a customer's express consent, because that interpretation both comports with the statutory language and best achieves the legislative purposes. Although the language is ambiguous, the FCC found that the "common sense understanding" of the term "approval" connotes "an informed and deliberate response. " 13 FCC Red at 8130 (¶ 91). The FCC found that an express customer consent ("opt-in") requirement would "minimize any unwanted and unknowing disclosure," and thus would protect customer privacy. Id. at 8128 (¶ 87). This approach also would promote competition by minimizing "untoward competitive advantages that might otherwise accrue unnecessarily to incumbent carriers."8 In contrast, an "opt-out" approach -- in which a carrier could use a customer's CPNI unless the customer expressly told the carrier not to use it -- would not establish the customer's informed and deliberate approval. Id. at 8130-31 (¶ 91).
813 FCC Red at 8128 (187). See id. at 8134 (¶ 95).
The FCC considered, and rejected, the claim that an "opt-in" approach would violate the First Amendment.9 Because the CPNI rules at most involve commercial speech, the FCC considered whether substantial interests support the rules, whether the rules advance those interests, and whether those interests could be served as well by more limited restrictions. 13 FCC Rcd 8143-45 (¶¶ 106-107), citing Central Hudson, 447 U.S. at 564, 566. The FCC found that its rules directly advance the protection of customer privacy "by vesting control over the dissemination of CPNI with the customer, rather than the carrier," and that the rules promote competition "by limiting the ability of incumbent carriers to leverage their control over monopoly-derived CPNI into emerging telecommunications markets." Id. And the FCC held that the rules were narrowly tailored to achieve these Congressional objectives. Id.
On review, a panel of this Court undertook to evaluate the rules under the Central Hudson test. 182 F.3d at 1232-33.10 The majority found that the "specific and dominant purpose" of Section 222 was to protect customer privacy. Id. at 1236. It inferred that the privacy interest in this case was to protect customers from the
9 As a threshold matter, the FCC doubted whether the restrictions "even implicate constitutionally protected 'speech."' 13 FCC Rcd at 814-4 (¶ 106).10 Although the majority also invoked "the rule of constitutional doubt" to avoid constitutional problems, 182 F.3d at 1231, 1240, its opinion appears not to apply that rule and its analysis is not consistent with the application of that rule. The rule is an exception to the general rule of judicial deference that reviewing courts ordinarily give to all agency's reasonable interpretation of an ambiguous statute (see Chevron U.S.A. Inc. v. NRDC, 46-7 U.S. 837 (1984), where the agency's interpretation raises serious doubts about the constitutionality of a federal statute. See Rust v. Sullivan, 500 U.S. 173, 190-91 (1991). The majority in this case reviewed the FCC's rules on the merits and found the rules themselves to violate the First Amendment. It did not give the statute a limiting construction in order to avoid constitutional questions.
disclosure of sensitive and potentially embarrassing information; and it assumed the substantiality of that interest under Central Hudson. Id. at 1234-35. With respect to the interest in promoting competition, the majority held that the interest could not itself justify the CPNI rules although it did not reject that interest altogether. Id. at 1236-37 & 1239 n.13.
The majority then held that the FCC had not shown that the CPNI rules substantially advanced either of the identified governmental interests. It asserted that the FCC had presented "no evidence showing the harm to either privacy or competition is real." 182 F.3 at 1237. Finally, the majority found that the CPNI
rules were not narrowly tailored to the governmental interest in protecting privacy. 182 F.3d at 1237-39. The majority particularly faulted the FCC for its alleged failure to consider adequately the less restrictive opt-out approach. 182 F.3d at 1239 & n.11.
Judge Briscoe dissented, finding thal the CPNI rules were both reasonable and constitutional. 182 F.3d at 1240-48. She concluded that protecting consumer privacy and promoting competition were substantial governmental interests; that the CPNI rules materially advance these interests; and that the FCC's approach was narrowly tailored to advance them. Indeed, because the opt-out method would not ensure the legislatively required informed customer consent, the dissent found that the FCC’s approach is "the only method of obtaining approval that serves the governmental interests . . . ." Id. at 1247. The dissent also pointed out that the FCC had considered all the "limited options available" and had made a careful calculation of the costs and benefits associated with the burden on speech. Id. at 1246.
Assuming that the First Amendment is implicated at all in restrictions on telephone company use of private information about subscriber calling practices, the CPNI rules at most involve commercial speech. This form of expression is accorded only a "limited measure of protection, commensurate with its subordinate position in the scale of First Amendment values."11 Commercial speech restrictions, are "upheld where the government shows (1) that it has a substantial interest in regulating the speech, (2) that the regulation directly and materially advances that interest and (3) that the interest would not be served as well by more limited restrictions. E.g., Central Hudson, 467 U.S, at 564-65.
In applying the Central Hudson test, the majority (1) failed to identify correctly the governmental interest in consumer privacy, (2) failed adequately to take into account the governmental interest in promoting competition, and (3) both misconstrued and misapplied the narrow tailoring requirement.
Section 222 "protect[s] customers' reasonable expectations of privacy" by "giving customers control over CPNI." Order, 13 FCC Rcd at 8101 (¶ 53).12 Congress in adopting Section 222 realized that CPNI is sensitive and personal information about the customer that the telephone carriers possess "solely by virtue of the carrier-
11 Board of Trustees of the State University of New York v. Fox, 492 U.S. 469, 477(1989).12 It is well established that the governmental interest in protecting privacy is substantial under the Central Hudson test. See, e.g., Florida Bar v. Went For It Inc., 515 U.S. 618 (1995); Edenfleld v. Fane, 507 U. S. 761, 767 (1993); Lanphere & Urbaniak v. Colorado, 21 F.3d 1508, 1515 (10th Cir. 1994).
customer relationship." 47 U.S.C. § 222(f)(1). Although carriers collect CPNI in the process of serving their customers, they possess CPNI only as "custodians" for the limited purposes of billing for that service and managing their networks.13 Section 222 reflects Congress's policy decision that the customer ought to control any use of its own CPNI beyond those limited purposes.
Section 222 thus in effect establishes a "privilege" for customer-identifiable CPNI closely akin to the physician-patient privilege. In both situations, one who obtains sensitive and confidential information about an individual in the course of providing an essential service has a duty not to disclose, use, or provide access to that information without that individual's express consent. Although the sensitive and personal information legitimately is in the possession of the service provider, control of that information remains with the individual to whom that information pertains.14
Although the majority faulted the FCC for assertedly failing to specify the precise customer privacy interest underlying Section 222, 182 F.3d at 1235, it ignored the FCC's explicit identification of that interest as ensuring customer control over the
13 U S West's customers had no choice but to take service from that monopoly provider (and thereby make their CPNI available) or to do without telephone service.14 The FCC has found that CPNI "belongs to the customers" even though the carriers have access to it for limited purposes. CPE,102 FCC 2d at 693 (¶ 64). Many other federal statutes protect individual privacy by restricting the use or disclosure of sensitive and personal information. See, e.g.,18 U. S. C. § 2511 (c), (d) (persons bar-red from intentionally using or disclosing contents of wiretaps); 29 U.S.C. § 2008 (persons conducting polygraph tests barred from disclosing information obtained from the person examined during such tests); 47 U.S.C. § 511(c)(1) (cable operators barred from disclosing personally identifiable information concerning cable subscribers without subscribers' consent).
use of CPNI. The majority "infer[red]" a far more limited governmental purpose: it claimed that Congress was concerned that "disclosure of CPNI information could prove embarrassing" and sought to prevent only this "potential harm." Id. at 1235.
As the majority itself recognized, "the Central Hudson standard does not permit [the court] to supplant the precise interest put forward by the [government] with other suppositions." 182 F.3d at 1234, quoting Edenfield, 507 U.S. 761. Thus, at the threshold the majority erred in supplanting the FCC's view of the relevant privacy interest (ensuring customer control over the use of CPNI) with its own supposition of this interest (preventing the disclosure of potentially embarassing personal information).
The majority's narrow view of this governmental interest is inconsistent with both the statutory language and jurisprudential notions of privacy. Section 222(c)(1) explicitly restricts disclosure, use and access. Congress would not have placed restrictions on use and access if its sole concern had been unauthorized disclosure. In addition, although protecting against unauthorized disclosures of personal information is one component of the privacy interest, privacy more broadly includes "the right to control information about ourselves."15 CPNI reveals a multitude of personal information about the subscriber, e.g., the subscriber's friends, business relationships, and product and service preferences as well as social, organizational, and political telephone contacts. The courts have found cognizable invasions of privacy in the
15 Cornish, "Workplace Privacy, Autonomy and Dignity in Colorado: Part 1, Colorado Lawyer, Vol 27, No. 11, at 6 (quotations omitted).
unauthorized use of personal information in the absence of disclosures to third parties. In short, the interest in privacy recognizes that as to personal information -- such as CPNI -- it simply is no one else's business."
The majority's crabbed identification of the customer privacy interest also tainted its analysis of whether the CPNI rules directly and materially advance that interest under the second part of the Central Hudson test. The majority held that the CPNI rules did not further customer privacy because the government had not shown "how and to whom carriers would disclose CPNI." 182 F.3d at 1237. The majority should have assessed instead whether the CPNl rules promote customer control over use, disclosure, and access. If it had identified the interest correctly, it would have found that the CPNI rules directly further that interest by requiring carriers generally to secure the express consent of their customers before they use, disclose or give access to CPNI. See Order, 13 FCC Rcd at 8145 (¶ 107).
The majority compounded this error by requiring the government to show that disclosure "would inflict specific and significant harm to individuals, such as undue
16 See, e.g., Norman-Bloodsaw v. Lawrence Berkeley Laboratory, 135 F.3d 1260, 1265 (9th Cir. 1998).17 The majority errs in claiming that the government was required to compile a "record" to justify the specific privacy interest underlying Section 222, 182 F.3d at 1234. As the dissent correctly noted, the FCC had no reason to justify "an interest that originated with Congress, and thus predated the administrative process in this case." Id. at 1245. The FCC's task is to implement the will of Congress, not to second-guess legislative policy by independently evaluating and verifying Congressional judgment. Nor was Congress required to compile an agency-like administrative record to justify its interest in protecting customer privacy. See Tamer Broadcasting System. v. FCC 520 U.S. 180, 212 (1997).
embarrassment or ridicule." 182 F.3d at 1235. Where, as here, an individual has a reasonable expectation of privacy, the unauthorized use, access, or disclosure itself causes injury - regardless of whether undue embarrassment or ridicule occurs."18 Just as a hospital patient's privacy interest in the confidentiality of personal medical records does not depend upon proof that the protected information reveals embarrassing facts, a telephone customer's privacy interest in the confidentiality of CPNI is not limited to protection from uses that would embarrass or ridicule. The customer is entitled to have control over any use of this personal and sensitive information beyond the specific uses (billing and network planning) for which the customer impliedly consented to its collection.
The majority also erred in rejecting the FCC's interpretation of Section 222 as resting on a significant legislative interest in promoting competition. See 182 F.3d at 1236-37. As the majority stated, "the broad purposes of an Act frequently provide useful insight into the purposes served by a narrow provision of the Act." 182 F.3d 1237 n.10. The overriding purpose of the 1996 Act -- of which Section 222 is a part -- is to promote competition in the telecommunications industry, and the FCC reasonably construed Section 222 as designed in part to advance that purpose.19 The FCC's interpretation also is consistent with more than 10 years of its own
18 See, e.g., Sheets v. Salt Lake County, 45 F.3d 1383, 1388 (10th Cir. 1995) (Court finds an invasion of privacy in the unauthorized disclosure of a diary of the plaintiff's deceased spouse, which contained personal but not embarrassing observations about the plaintiffs character, marriage, finances, and business).19 See Crandon v. United States, 494 U.S. 152, 158 (1990) (statutory interpretation includes consideration of object and policy of the statute as a whole).
regulation of CPNI -- regulation that had its basis in the substantial governmental interests in both customer privacy and competition.20 The FCC's conclusion that Congress sought to further the same governmental interests that had motivated the agency's CPNI rules is buttressed by the fact that the legislative history explicitly identifies Section 222 as having the same two objectives as the pre-existing CPNI rules. See Joint Explanatory Statement, at 205.
Since the FCC's interpretation of the legislative purpose is reasonable and not at odds with the "unambiguously expressed intent of Congress," the Court under Chevron was obligated to defer to that interpretation and to give full weight to the interests identified. 467 U.S. at 842-43 & n.11. See 182 F.3d at 1231.21
Finally, the majority erred in concluding, under the third part of The Central Hudson test, that the CPNI rules; were not narrowly drawn to further the interest in
20 See Customer Proprietary Network Information, Notice,11 FCC Rcd 12513, 12516 (¶ 4) (1996).21 The rule of "constitutional doubt" has no relevance to the issue here. The constitutionality of Section 222 would not be placed into doubt by an interpretation that the statute is designed in part to promote competition. Indeed, the reverse is true. A determination that Section 222 serves the governmental interest in promoting competition provides an added justification for finding the statute constitutional.
The majority points out that if a carrier obtains a high rate of customer approval, the competitive benefits of the CPNI restrictions would diminish. 182 F.3d at. 1237. The fact that the two interests may be in tension in some circumstances does not suggest that the two interests arc not implicated. Indeed, Congress recognized the tension and sought to "balance" the two interests with respect to CPNI. Order, 13 FCC Rcd at 8132-35 (¶¶ 94-96). The record evidence, moreover, shows that it is highly unlikely that a carrier will achieve a high rate of customer approval under an informed approval approach. See id. at 8138 (¶ 99) (Market study shows that when asked, customers more often than not want to limit their carrier's use of their CPNI for purposes beyond the existing service relationship.").
protecting privacy.22 This standard is less demanding than a least-restrictive means test23 and requires an evaluation of whether the "fit" between regulation and the asserted interest is a reasonable one - not whether it is a perfect fit or even whether it is "the single best disposition." Board of Trustees, 492 U.S. at 480.
The CPNI rules easily satisfy this test. Significantly, the petitioners did not argue and the majority did not hold that a customer approval requirement, in itself, violates the First Amendment. The narrow issue in this case is whether the particular type of approval chosen by the FCC is constitutional. See Dissent, 182 F.3d at 1243,
The majority held that the CPNI rules were not narrowly drawn because the FCC did not consider adequately the opt-out approach. 182 F.3d at 1238-39. In fact, the FCC considered the opt-out approach at length, and rejected it because that approach would not elicit a customer's informed approval. Order, 13 FCC Rcd at 8130-31 (¶ 91). The FCC reasoned that a notice announcing an opt-out procedure might not be effective in informing customers either of their right to restrict the use of their CPNI, or of the steps they must take to exercise that right. 13 FCC Rcd at 8130-31 (¶ 91). This could occur, for example, if a customer does not read the CPNI notice in a bill insert, or if it summarily discards a CPNI notice, thinking it to be "junk mail." To the extent that a customer does not consider the notice, the carrier under an opt-out approach could use CPNI without its customer's informed approval.
22 The majority did not address the FCC's finding that the CPNI rules were narrowly drawn to further the governmental interest in promoting competition. See13 FCC Red 8144 (¶ 107); 182 F.3d at 12309 n.13.23 See Went for It, 515 U.S. at 632.
thereby frustrating the governmental objective of ensuring customer control over CPNI. Thus, the opt-out approach would be significantly less effective in furthering the governmental interest in customer privacy. See Dissent, 182 F.3d at 1246-47. The First Amendment does not require the FCC to tailor its CPNI rules so narrowly as to fail to serve the identified governmental interests.
In contrast, an express approval requirement would substantially advance the customer privacy objective. It would ensure that a customer retains control over his or her CPNI by generally preventing the carrier from using that CPNI without the customer's informed approval. Order,13 FCC Rcd At 8130-31 (¶ 91). This form of regulation, as the dissent pointed out, may be "the only method of obtaining approval that serves the governmental interests at issue while simultaneously complying with the express requirements of the statute (i.e., obtaining informed customer consent)." 182 F.3d 1245 (emphasis added).24
24 The FCC also narrowly tailored the particular opt-in approach that it adopted. For example, the FCC did not limit the number of times a carrier may seek to obtain approval. Id. at 8151 (¶117). The FCC gave carriers broad flexibility to obtain approval oral, written or electronic form. Id. at 8131, 8146-47 (¶¶ 92, 110-111). The FCC permitted carriers to seek partial approvals, i.e., approvals for certain uses, types of information, or time periods. Id. at 8152 (¶ 118). And the FCC refused to limit approvals to a specific transaction or to a particular time period, holding instead that an approval remains valid until revoked or limited by the customer. Id. at 8151 (¶ 116). In addition, the FCC construed the term "service" in section 222(c)(1)(A) to permit the carrier without a customer's express approval to use CPNI for all services to which the customer subscribes from that carrier, 13 FCC Rcd at 8081-8127 (¶¶ 27-85). More restrictive interpretations of the term "service," as proposed by many parties, would have obligated carriers to seek approvals in many more circumstances than the one adopted by the agency.
The majority also asserted that there was no showing in the agency record that customers "do not want carriers to use their CPNI." 182 F.3d at 1239. Even if the FCC were required to compile a record to support Congress's policy to promote customer privacy, the FCC's finding that most customers value that privacy of their CPNI has adequate record support. As the FCC noted, U S West's own market trial showed that, when asked, more, customers refused approval (33 %) than granted it (29%). Order, 13 FCC Rcd at 8138 (¶ 99), The FCC reasonably found that the remaining 39% who refused even to listen to U S West's request for approval did "not want to hear about expanding service offerings, and in particular [did] not want their CPNI-used toward that end." Id. at 8139 (¶ 100).
The panel or the court en banc should rehear this case.
Respectfully submitted,
DAVID W. OGDEN CHRISTOPHER J. WRIGHT MARK STERN JOHN E. INGLE U.S. Department of Justice LAUREL R. BERGOLD October 1, 1999 Federal Communications
Commission
Acting Assistant Attorney
General
General Counsel
JACOB LEWIS
Attorneys
Deputy Associate General Counsel
Washington, D.C. 20530
Counsel
Washington, D.C. 20554
(202) 418-1740