U.S. West, Inc. v. Federal Communications Commission

Pursuant to 28 U.S.C. § 2342(1) and 47 U.S.C. § 402(a), U.S. West, Inc. petitions for review of a Federal Communication Commission (“FCC”) order restricting the use and disclosure of and access to customer proprietary network information (“CPNI”). See Second Report and Order and Further Notice of Proposed Rulemak-ing: In the Matter of Implementation of the Telecommunications Act of 1996; Telecommunications Carriers’ Use of Consumer Proprietary Network Information and Other Customer Information; Implementation of Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, 63 Fed. Reg. 20,326 (1998) (“CPNI Order”). Petitioner argues that the regulations adopted by the CPNI Order constitute an arbitrary and capricious interpretation of the controlling provisions of 47 U.S.C. § 222 and are impermissible because they violate the First and Fifth Amendments of the United States Constitution. The regulations require telecommunications companies, in most instances, to obtain affirmative approval from a customer before the company can use that customer’s CPNI for marketing purposes. We vacate the FCC’s CPNI Order, concluding that the FCC failed to adequately consider the constitutional ramifications of the regulations interpreting § 222 and that the regulations violate the First Amendment.

I. Introduction

This case involves classic issues of separation of powers and the courts’ necessary role as guardians of constitutional interests. It is seductive for us to view this as just another case of reviewing agency action. However, this case is a harbinger of difficulties encountered in this age of exploding information, when rights bestowed by the United States Constitution must be guarded as vigilantly as in the days of handbills on public sidewalks. In the name of deference to agency action, important civil liberties, such as the First Amendment’s protection of speech, could easily be overlooked. Policing the boundaries among constitutional guarantees, legislative mandates, and administrative interpretation is at the heart of our responsibility. This case highlights the importance of that role.

II. Background

The dispute in this case involves regulations the FCC promulgated to implement provisions of 47 U.S.C. § 222, which was enacted as part of the Telecommunications Act of 1996. Section 222, entitled “Privacy of customer information,” states generally that “[ejvery telecommunications carrier has a duty to protect the confidentiality of proprietary information of, and relating to ... customers.” 47 U.S.C. § 222(a). To effectuate that duty, § 222 places restrictions on the use, disclosure of, and access to certain customer information. At issue here are the FCC’s regulations clarifying the privacy requirements for CPNI.1 The *1229central provision of § 222 dealing with CPNI is § 222(c)(1), which states:

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, disclose, or permit access to individually identifiable customer proprietary network information in its provision of (A) the telecommunication service from which such information is derived, or (B) services necessary to, or used in, the provision of such telecommunications service, including the publishing of directories.

Section 222(d) provides three additional exceptions to the CPNI privacy requirements. Those exceptions allow a telecommunications carrier to use, disclose or permit access to CPNI:

(1) to initiate, render, bill, and collect for telecommunications services,

(2) to protect the rights or property of the carrier, or to protect users of those services and other carriers from fraudulent, abusive, or unlawful use of, or subscription to, such services, or

(3) to provide any inbound telemarketing, referral, or administrative services to the customer for the duration of the call, if such call was initiated by the customer and the customer approves of the use of such information to provide such service.

47 U.S.C. § 222(d). Therefore, the essence of the statutory scheme requires a telecommunications carrier to obtain customer approval when it wishes to use, disclose, or permit access to CPNI in a manner not specifically allowed under § 222.

Section 222 is not the first time the government has placed restrictions on telecommunications carriers’ use or disclosure of CPNI. Prior to the enactment of § 222, the FCC had imposed CPNI requirements on the enhanced service operations of several major telecommunications carriers. See CPNI Order ¶ 7. The FCC imposed these CPNI requirements primarily to prevent large carriers from gaining a competitive advantage in the unregulated enhanced services markets through the use of CPNI, thereby protecting smaller carriers. See id. In contrast, Congress made § 222, which is much broader in scope than previous CPNI requirements, applicable to all carriers, not just the dominant ones. This suggests that Congress enacted § 222 for a substantially different purpose than previous FCC CPNI requirements.

Faced with the new CPNI restrictions, various telecommunications companies and trade associations sought FCC guidance regarding their obligations under § 222. See id. ¶ 6 & n. 25. These requests, along with a petition for a declaratory ruling regarding the interpretation of the term “telecommunication service” under § 222(c)(1), prompted the FCC to commence a rulemaking on May 17, 1996. See id. ¶ 6; In the Matter of Implementation of the Telecommunications Act of 1996: Telecommunication Carriers’ Use of Customer Proprietary Network Information and Other Customer Information, Notice of Proposed Rulemaking, 61 Fed.Reg. 26,-483 (1996) (“CPNI NPRM”). The CPNI NPRM sought comment on, among other things: “(1) the scope of the phrase 'telecommunications service,’ as it is used in section 222(c)(1) ...; (2) the requirements *1230for customer approval; and (3) whether the Commission’s existing CPNI requirements should be amended in light of section 222.” CPNI Order ¶ 6 (citing CPNI NPRM ¶¶ 20-33, 38-42). On February 26, 1998, the FCC released the CPNI Order we now review. The CPNI Order addresses the meaning and scope of § 222 and adopts regulations to implement the statute’s CPNI requirements. See 47 C.F.R. pt. 64, subpt. U (1998).

The regulations adopted by the CPNI Order interpret § 222(c)(1) through a framework known as the “total service approach.” That approach divides the term “telecommunications service” into three service categories: (1) local; (2) interex-change (which includes most long-distance toll service); and (3) commercial mobile radio service (“CMRS”) (which includes mobile or cellular service). See 47 C.F.R. § 64.2006(a). Broadly stated, the regulations permit a telecommunications carrier to use, disclose, or share CPNI for the purpose of marketing products within a category of service to customers, provided the customer already subscribes to that category of service. See id. However, the carrier may not, without customer approval, use, disclose, or permit access to CPNI for the purpose of marketing categories of service to which the customer does not already subscribe. See id. § 64.2005(b).2 For example, petitioner could use CPNI obtained through the provision of local service to market other local service products, but not cellular services. Moreover, if the customer subscribes to both local and long-distance services, petitioner could use the CPNI to market either service and could exchange the CPNI between affiliates that provide such services, but petitioner could still not use the CPNI to market cellular services. In addition, the regulations prevent telecommunications carriers from using, without customer approval, CPNI gained from any of the three categories described above to: (1) market customer premises equipment (“CPE”) or information services (such as call answering, voice mail, or Internet access services); (2) identify or track customers that call competitors; and (3) regain the business of customers who have switched to another carrier. See id. § 64.2005(b)(1)-(3). The regulations also set forth some additional narrow exceptions to the CPNI requirements, other than those stated in § 222(d). See id. § 64.2005(e).

The regulations also describe the means by which a carrier must obtain customer approval. Section 222(c)(1) did not elaborate as to what form that approval should take. The FCC decided to require an “opt-in” approach, in which a carrier must obtain prior express approval from a customer through written, oral, or electronic means before using the customer’s CPNI. See 47 C.F.R. § 64.2007(b). The government acknowledged that the means of approval could have taken numerous other forms, including an “opt-out” approach, in which approval would be inferred from the customer-carrier relationship unless the customer specifically requested that his or her CPNI be restricted.

Petitioner challenges the FCC’s chosen approval process, claiming it violates the First Amendment by restricting its ability to engage in commercial speech with customers. In addition, petitioner argues that the CPNI regulations raise serious Fifth Amendment Takings Clause concerns because CPNI represents valuable property that belongs to the carriers and the regulations greatly diminish its value. The respondents assert that the FCC’s CPNI regulations raise no constitutional concerns, are reasonable, and are entitled to deference under the Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

*1231III. Discussion

A. Standard of Review

Under the Administrative Procedure Act, we review a final FCC order to determine whether it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A), or “contrary to constitutional right, power, privilege, or immunity,” id. § 706(2)(B). See Long v. Board of Governors of the Fed. Reserve Sys., 117 F.3d 1145, 1151 (10th Cir.1997); City of Albuquerque v. Broumer, 97 F.3d 415, 424 (10th Cir.1996). In addition, when the question before us involves an agency’s interpretation of a statute it administers, we utilize the two-step approach announced in Chevron. See, e.g., Sierra Club v. EPA, 99 F.3d 1551, 1555 (10th Cir.1996). When Congress has spoken to the precise question at issue, we must give effect to the express intent of Congress. See Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. However, if the statute is silent or ambiguous, we defer to the agency’s interpretation, if it is reasonable. See id. at 843-44, 104 S.Ct. 2778. The agency’s interpretation of the statute need not be the only reasonable or most reasonable interpretation, see id. at 843 n. 11, 104 S.Ct. 2778, but an unconstitutional interpretation is not entitled to Chevron deference.

In addition, deference to an agency interpretation is inappropriate not only when it is conclusively unconstitutional, but also when it raises serious constitutional questions. See Rust v. Sullivan, 500 U.S. 173, 190-91, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991); Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575-76, 108 S.Ct. 1392, 99 L.Ed.2d 645 (1988); Williams v. Babbitt, 115 F.3d 657, 661-62 (9th Cir.1997), cert. denied sub nom. Kawerak Reindeer Herders Ass’n v. Williams, — U.S. -, 118 S.Ct. 1795, 140 L.Ed.2d 936 (1998); Chamber of Commerce of the United States v. FEC, 69 F.3d 600, 605 (D.C.Cir.1995); Kohler Co. v. Moen Inc., 12 F.3d 632, 634 n. 2 (7th Cir.1993). When faced with a statutory interpretation that ‘would raise serious constitutional problems, the [c]ourt[s] will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress.” DeBartolo Corp., 485 U.S. at 575, 108 S.Ct. 1392. We follow this approach because we assume that Congress legislates with constitutional limitations in mind and will speak clearly when it seeks to test those limitations. See Rust, 500 U.S. at 191, 111 S.Ct. 1759; DeBartolo Corp., 485 U.S. at 575, 108 S.Ct. 1392; Williams, 115 F.3d at 662; International Union, United Auto., Aerospace & Agric. Implement Workers of Am., UAW v. OSHA, 938 F.2d 1310, 1317 (D.C.Cir.1991) (“In effect we require a clear statement by Congress that it intended to test the constitutional waters.”). The Williams court aptly explained the doctrine as it applies to agencies:

[J]ust as we will not infer from an ambiguous statute that Congress meant to encroach on constitutional boundaries, we will not presume from ambiguous language that Congress intended to authorize an agency to do so. At the core of DeBartolo lies the presumption that, if Congress means to push the constitutional envelope, it must do so explicitly.

Williams, 115 F.3d at 662.

Petitioner raises First and Fifth Amendment challenges to the approval procedure adopted by the FCC. The parties agree that Congress did not explicitly set forth the form of customer approval carriers must obtain. Therefore, if we determine that the FCC’s customer approval rule presents a serious or grave constitutional question, we will owe the FCC no deference, even if its CPNI regulations are otherwise reasonable, and will apply the rule of constitutional doubt.

B. Do the CPNI regulations violate the First Amendment?

Petitioner argues that the CPNI regulations interpreting 47 U.S.C. § 222 violate the First Amendment. The First Amendment states, “Congress shall make *1232no law ... abridging the freedom of speech.” U.S. Const, amend. I. Although the text of the First Amendment refers to legislative enactments by Congress, it is actually much broader in scope and encompasses, among other things, regulations promulgated by administrative agencies. See, e.g., Rust, 500 U.S. at 192, 111 S.Ct. 1759 (subjecting Department of Health and Human Services regulations limiting the ability of Title X fund recipients to engage in abortion-related activities to review under the First Amendment).

1. Do the CPNI regulations restrict speech?

As a threshold requirement for the application of the First Amendment, the government action must abridge or restrict protected speech. The government argues that the FCC’s CPNI regulations do not violate or even infringe upon petitioner’s First Amendment rights because they only prohibit it from using CPNI to target customers and do not prevent petitioner from communicating with its customers or limit anything that it might say to them. This view is fundamentally flawed. Effective speech has two components: a speaker and an audience. A restriction on either of these components is a restriction on speech. Cf. Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 756-57, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) (noting that the First Amendment protects the communication, whether the speech restriction applies to its source or impinges upon the audience’s reciprocal right to receive the communication); Martin v. City of Struthers, 319 U.S. 141, 143, 63 S.Ct. 862, 87 L.Ed. 1313 (1943) (noting the First Amendment “embraces the right to distribute literature and necessarily protects the right to receive it”). In other words, a restriction on speech tailored to a particular audience, “targeted speech,” cannot be cured simply by the fact that a speaker can speak to a larger indiscriminate audience, “broadcast speech.”

Perhaps the Supreme Court case of Florida Bar v. Went For It, Inc., 515 U.S. 618, 115 S.Ct. 2371, 132 L.Ed.2d 541 (1995), best illustrates this. In Went For It, a lawyer referral service and an individual lawyer challenged a Florida Bar rule that prohibited attorneys from using direct mail advertisements to solicit wrongful death and personal injury clients within thirty days of the accident or disaster causing death or injury. See 515 U.S. at 620-21, 115 S.Ct. 2371. Despite the fact that the attorney could indiscriminately mail solicitations for his services, the court found that the targeted speech constituted commercial speech and that the restriction on the targeted speech implicated the First Amendment. See id. at 623, 115 S.Ct. 23713; see also Ficker v. Curran, 119 F.3d 1150, 1153-56 (4th Cir.1997) (applying First Amendment analysis to direct mail solicitations by attorneys to criminal and traffic defendants); Revo v. Disciplinary Bd. of the Sup.Ct. for the State of N.M., 106 F.3d 929, 932-33 (10th Cir.) (determining that lawyer’s direct mail advertising to personal injury victims and family members of wrongful death victims constituted protected commercial speech), cert. denied, 521 U.S. 1121, 117 S.Ct. 2515, 138 L.Ed.2d 1017 (1997). Therefore, the existence of alternative channels of communication, such as broadcast speech, does not eliminate the fact that the CPNI regulations restrict speech.

2. What kind of speech is restricted?

Because petitioner’s targeted speech to its customers is for the purpose of soliciting those customers to purchase more or different telecommunications services, it “does no more than propose a commercial transaction,” Virginia State Bd. of Pharmacy, 425 U.S. at 760, 96 S.Ct. 1817 (quoting Pittsburgh Press Co. v. Human Relations Comm’n, 413 U.S. 376, 385, *123393 S.Ct. 2558, 37 L.Ed.2d 669 (1973)). Consequently, the targeted speech in this case fits soundly within the definition of commercial speech. See id.; Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66, 103 S.Ct. 2875, 77 L.Ed.2d 469 (1983); Cardtoons, L.C. v. Major League Baseball Players Ass’n, 95 F.3d 959, 970 (10th Cir.1996); see also, e.g., Bad Frog Brewery, Inc. v. New York State Liquor Auth., 134 F.3d 87, 97 (2d Cir.1998) (“The ‘core notion’ of commercial speech includes speech which does no more than propose a commercial transaction.” (internal quotation marks and citation omitted)). It is well established that nonmisleading commercial speech regarding a lawful activity is a form of protected speech under the First Amendment, although it is generally afforded less protection than noncommercial speech. See, e.g., Went For It, 515 U.S. at 623, 115 S.Ct. 2371; Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557, 562-63, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980). The parties do not dispute that the commercial speech based on CPNI is truthful and nonmisleading. Therefore, the CPNI regulations implicate the First Amendment by restricting protected commercial speech.4

3. Central Hudson analysis

We analyze whether a government restriction on commercial speech violates the First Amendment under the four-part framework set forth in Central Hudson. First, we must conduct a threshold inquiry regarding whether the commercial speech concerns lawful activity and is not misleading. See Central Hudson, 447 U.S. at 566, 100 S.Ct. 2343. If these requirements are not met, the government may freely regulate the speech. See Went For It, 515 U.S. at 623-24, 115 S.Ct. 2371; Revo, 106 F.3d at 932. If this threshold requirement is met, the government may restrict the speech only if it proves: “(1) it has a substantial state interest in regulating the speech, (2) the regulation directly and materially advances that interest, and (3) the regulation is no more extensive than necessary to serve the interest.” Revo, 106 F.3d at 932 (citing Central Hudson, 447 U.S. at 564-65, 100 S.Ct. 2343).5 *1234As noted above, no one disputes that the commercial speech based on CPNI is truthful and nonmisleading. We therefore proceed directly to whether the government has satisfied its burden under the remaining three prongs of the Central Hudson test.

a. Does the government have a substantial state interest in regulating speech involving CPNI?

The respondents argue that the FCC’s CPNI regulations advance two substantial state interests: protecting customer privacy and promoting competition. While, in the abstract, these may constitute legitimate and substantial interests, we have concerns about the proffered justifications in the context of this case.

Privacy considerations of some sort clearly drove the enactment of § 222. The concept of privacy, though, is multi-facet-ed. Indeed, one can apply the moniker of a privacy interest to several understandings of privacy, such as the right to have sufficient moral freedom to exercise full individual autonomy, the right of an individual to define who he or she is by controlling access to information about him or herself, and the right of an individual to solitude, secrecy, and anonymity.6 See Fred H. Cate, Privacy in the Information Age 19-22 (1997); Joseph I. Rosenbaum, Privacy on the Internet: Whose Information Is It Anyway?, 38 Jurimetrics J. 565, 566-67 (1998). The breadth of the concept of privacy requires us to pay particular attention to attempts by the government to assert privacy as a substantial state interest.

When faced with a constitutional challenge, the government bears the responsibility of building a record adequate to clearly articulate and justify the state interest. “[T]he Central Hudson standard does not permit us to supplant the precise interests put forward by the State with other suppositions.” Edenfield v. Fane, 507 U.S. 761, 768, 113 S.Ct. 1792, 123 L.Ed.2d 543 (1993). Although we agree that privacy may rise to the level of a substantial state interest, see, e.g., Went For It, 515 U.S. at 625, 115 S.Ct. 2371 (“Our precedents leave no room for doubt that ‘the protection of potential clients’ privacy is a substantial state interest’ ” (quoting Edenfield, 507 U.S. at 769, 113 S.Ct. 1792)), the government cannot satisfy the second prong of the Central Hudson *1235test by merely asserting a broad interest in privacy. It must specify the particular notion of privacy and interest served. Moreover, privacy is not an absolute good because it imposes real costs on society.7 Therefore, the specific privacy interest must be substantial, demonstrating that the state has considered the proper balancing of the benefits and harms of privacy. In sum, privacy may only constitute a substantial state interest if the government specifically articulates and properly justifies it.

In the context of a speech restriction imposed to protect privacy by keeping certain information confidential, the government must show that the dissemination of the information desired to be kept private would inflict specific and significant harm on individuals, such as undue embarrassment or ridicule, intimidation or harassment, or misappropriation of sensitive personal information for the purposes of assuming another’s identity. Although we may feel uncomfortable knowing that our personal information is circulating in the world, we live in an open society where information may usually pass freely. A general level of discomfort from knowing that people can readily access information about us does not necessarily rise to the level of a substantial state interest under Central Hudson for it is not based on an identified harm.

Neither Congress nor the FCC explicitly stated what “privacy” harm § 222 seeks to protect against. The CPNI Order notes that “CPNI includes information that is extremely personal to customers ... such as to whom, where, and when a customer places a call, as well as the types of service offerings to which the customer subscribes,” CPNI Order at ¶ 2, and it summarily finds “call destinations and other details about a call ... may be equally or more sensitive [than the content of the calls],” id. at ¶ 94. The government never states it directly, but we infer from this thin justification that disclosure of CPNI information could prove embarrassing to some and that the government seeks to combat this potential harm.

We have some doubts about whether this interest, as presented, rises to the level of “substantial.” We would prefer to see a more empirical explanation and justification for the government’s asserted interest. Cf. Went For It, 515 U.S. at 630, 115 S.Ct. 2371 (describing the record provided by the Bar cataloguing citizen outrage at being solicited just after injury or family tragedy). In addition, the authority relied upon by the government, Edenfield v. Fane, recognizes a state’s interest in protecting against unwanted intrusions caused by solicitations, see 507 U.S. at 769, 113 S.Ct. 1792; see also Went For It, 515 U.S. at 625, 115 S.Ct. 2371, but it says nothing about the disclosure of allegedly sensitive information. On the other hand, we recognize the government may have a legitimate interest in helping protect certain information. Cf. Lanphere & Urbaniak v. Colorado, 21 F.3d 1508, 1514 (10th Cir.1994) (finding a substantial state interest in the need to protect the privacy of those charged with traffic offenses and DUI against dissemination of charging information for commercial purposes). Therefore, notwithstanding our reserva*1236tions, we assume for the sake of this appeal that the government has asserted a substantial state interest in protecting people from the disclosure of sensitive and potentially embarrassing personal information.8

We harbor different reservations about the government’s asserted interest in competition. While we afford agencies broad deference in interpreting a statute they are charged to administer, they must obey the dictates of Congress and administer the statute true to Congress’ intent. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 213-14, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). We are not satisfied that the interest in promoting competition was a significant consideration in the enactment of § 222.

While the broad purpose of the Telecommunications Act of 1996 is to foster increased competition in the telecommunications industry,9 the language of § 222 reveals no such concern.10 Rather, the specific and dominant purpose of § 222 is the protection of customer privacy. Indeed, the FCC and members of Congress characterize § 222 as “striving] to balance both the competitive and consumer privacy interests with respect to CPNI,” Joint Statement of Managers, S. Conf. Rep. No. 104-230, at 205 (1996) (emphasis added), which suggests that § 222’s purpose in fostering privacy may even run counter to the broad pro-competition purpose of the Telecommunications Act. In any event, three other considerations persuade us that Congress did not intend for competition to be a significant purpose of § 222. First, and most important, the plain language of the section deals almost exclusively with privacy. Section 222 is entitled “Privacy of customer information” and is replete with references to privacy and confidentiality of customer information. In contrast, § 222 contains no explicit mention of competition. Although § 222(c)(3) and § 222(e) impose nondiscrimination requirements with respect to dis*1237closure of aggregate customer and subscriber list information which could be construed as pro-competition measures, we find that these do not sufficiently indicate that increasing competition was a purpose of § 222. Moreover, the provisions of § 222 relating to CPNI which the challenged regulations interpret contain no reference to nondiscrimination requirements and reflect solely a concern for customer privacy. See 47 U.S.C. § 222(c)(1)-(2), (d). Second, § 222 differs from previous CPNI restrictions designed to foster competition because it applies to all telecommunications carriers, not just the dominant ones. This indicates a different purpose for the new restriction. Finally, § 222 contains measures that will allow full use, disclosure, and access to CPNI if customer approval is obtained. Assuming that a carrier is able to obtain a high rate of customer approval, the alleged competitive effect of § 222’s CPNI restrictions is minimal and can perhaps even be nullified. Consequently, we find that Congress’ primary purpose in enacting § 222 was concern for customer privacy, not the broader purpose of increasing competition.