The Commission’s rules provides that RF devices that are subject to verification or Declaration of Conformity procedures (or the newly adopted Supplier’s Declaration of Conformity ("SDoC") procedures) may not be marketed (which includes importation) unless the device complies with all of the Commission’s applicable technical, labeling, identification, and administrative requirements. Pure Enrichment sells its products – ultrasonic humidifiers, air purifiers, diffusers, electronic stimulator massagers, and personal care products – online and at brick-and-mortar retail establishments. (The products apparently, at least in many cases, are manufactured by contract manufacturers, based on the NAL.) In response to a March 2017 complaint to the FCC that Pure Enrichment’s humidifiers can radiate RF emissions that cause interference “to other appliances” and were not identified as having satisfied the equipment authorization requirements, the Commission’s Enforcement Bureau launched an inquiry in May of that year. Pure Enrichment, in a series of responses, claimed that it was unaware that it was marketing unauthorized models until receipt of the Bureau’s Letter of Inquiry (“LOI”), claiming that it believed that authorization was not required under a Commission exemption embodied in a Commission Laboratory Knowledge Database Publication certain (but not all) household appliances. Pure Enrichment acknowledged in responses to the FCC during the investigation that (i) five models lacked proper authorization, required user manual disclosures, and FCC labeling (ii) seven models had an authorization but lacked the required user manual disclosures and FCC labeling; and (iii) two models had an authorization but lacked user manual disclosures

Pure Enrichment provided the Commission a list of apparently noncompliant Part 15 and Part 18 radio frequency devices it marketed and imported into the United States, as well as revenues and other information about its sales of such noncompliant devices. Apparently, it continued to market the non-complaint devices after receiving the LOI and acknowledging that a number of the models were out of compliance. A number of the devices also failed to include the information required by the Commission’s rules to be included the user’s manual and/or other permitted means conveying that information to the user. This included information necessary to ensure the device is complaint with technical requirements and to instruct the user to take steps to mitigate any harmful interference caused by the device. Further, the labels required by the FCC’s rules were missing or improper. Some, but apparently not all, manuals and labels were corrected by Pure Enrichment over a three-month period following the receipt of the LOI, but it seems non-compliant product already held by third-party “logistics providers” in the United States continued to be marketed.

Even after becoming aware of the apparent violations, Pure Enrichment continued to market the fourteen models while it took corrective measures. Pure Enrichment apparently achieved compliance for thirteen of the fourteen as of February 15, 2018, but continues to market one noncompliant model that lacks the proper user manual disclosures and FCC labeling in apparent violation of the Commission’s rules.

In the NAL, the Commission proposes to apply the $7,000 base forfeiture for the marketing of unauthorized equipment to each of the fourteen models that failed to comply with the Commission’s equipment marketing requirements at some point within the last twelve months, resulting in an aggregate base forfeiture of $98,000. The Commission then applied several aggravating factors to arrive at the proposed penalty of 590,380, in particular, the intentional nature of the violations, Pure Enrichment’s resulting economic gain, and the duration and scope of the violations. As for intentionality, Pure Enrichment continued to market the noncompliant devices after becoming aware of the FCC’s investigation and then after acknowledging the noncompliance, despite later corrections covering thirteen of the fourteen devices in question. The continued marketing prior to correction resulted in revenues, which the Commission also took into account, but which data the NAL withholds from the public as confidential. As to scope and duration, the NAL notes that more than half of the devices in question allegedly suffered from at least two rule violations and that nine of the fourteen devices were marketed for more than a year, and some up to three years The Commission found no mitigating factors, underscoring that initial misunderstanding and confusion whether all of the models required authorizations provided no basis for a downward adjustment of the proposed forfeiture.

Commissioner Michael O’Rielly filed a concurring statement in which he was appreciative of the increase in proposed penalty almost $500,000 above the base amount, but he argued for reform of the enforcement process to make it more hard hitting. His statement reflects that the Chairman, at his behest, has committed to review the FCC’s forfeiture policies in the future. Commissioner O’Rielly would like to see baseline penalties that are more reflective of the severity of violations, diminishing reliance on upward adjustments and, he contends, improving the transparency, consistency, and credibility of the Commission’s enforcement process. Thus, for example, he raises concerns because, according to him,”[t]he base forfeiture is $7,000 for any model that does not comply with [the equipment authorization] requirements . . . regardless of whether one device of a certain model was sold or a million” and regardless of net profits or the period of time devices are out of compliance. Ostensibly, Commissioner O’Rielly would like to see base amounts increase in some fashion, literally or as applied.

The Commission’s ability to reset the base forfeiture amount is limited because that is set -- $7000 in the case of “importation or marketing of unauthorized equipment” – under Section 503 of the Communications Act, as are maximum penalties for violations and continuing violations. The discretion of the Commission arises in taking into account aggravating and mitigating factors and determining whether to apply the baseline penalty for equipment importation/marketing violations on a per model basis, as is typical (but not required by the statute) or on a per unit basis.

When and how the Commission moves forward with any policy review in this area of enforcement is certainly something that manufacturers, importers, distributors, brokers, and retailers should watch closely. In the interim, such entities may be well-served to review the processes they have in place to ensure that RF equipment which they import or market in any way adheres to the authorization procedures and information and labeling requirements that apply under the Commission’s rules. As the NAL makes clear, misunderstanding the requirements will likely not be an accepted excuse and rapid action to correct any discovered violations is essential to avoid the magnification of penalties should a complaint be made or an investigation commence.

The Truth in Caller ID Act prohibits certain forms of “spoofing,” which involves the alteration of caller ID information. While Congress recognized certain benign uses of spoofing, federal law prohibits the deliberate falsification of caller ID information with the intent to harm or defraud consumers or unlawfully obtain something of value. Back in June 2017, the FCC accused Mr. Abramovich and his companies of placing millions of illegal robocalls that used spoofing to make the calls appear to be from local numbers to increase the likelihood that the called party would pick up, a practice known as “neighbor spoofing.” The robocalls indicated that they came from well-known travel companies like TripAdvisor, but in reality the robocalls directed consumers to foreign call centers that had no relationship with the companies. Mr. Abramovich did not deny that his companies placed the spoofed robocalls, but argued that he lacked the requisite intent to defraud or cause harm, and noted that only a fraction of the consumers targeted actually answered the robocalls. Mr. Abramovich also argued that the third-party companies that hired to him to run the robocall campaign and the carriers that transmitted the robocalls should share in the liability for the violations.

The FCC disagreed. First, the FCC found that the use of neighbor spoofing and the references to well-known travel companies demonstrated an intent to defraud consumers. The FCC also found that Mr. Abramovich intended to harm the travel companies by trading on their goodwill and harmed consumers by spoofing their phone numbers, resulting in angry return calls by robocall recipients. Second, the FCC rejected the argument that liability should be based on the number of consumers who actually answered, explaining that the Truth in Caller ID Act only requires that a spoofed call be placed with fraudulent intent, not that the call actually reach a consumer. Finally, the FCC emphasized that Mr. Abramovich and his companies, not the third-party travel companies or the carriers, actually placed the spoofed robocalls and therefore bore sole responsibility for the violations. In fact, the FCC stated that the spoofed robocalls harmed the carriers by burdening their networks and engendering consumer complaints.

The fine is important for reasons beyond its size. For one, the fine came less than a year after the FCC issued the associated notice of apparent liability – an unusually quick turnaround for such a complex case that represents a shift to accelerated enforcement in line with Chairman Pai’s prior calls for a one-year deadline for forfeiture orders. Moreover, the FCC imposed the record-setting fine despite Mr. Abramovich’s claims that he cannot pay it. The FCC is required by the Communications Act to consider a party’s ability to pay when assessing forfeitures. As a result, the FCC historically will reduce a fine to approximately 2-8% of a party’s gross revenues in response to an inability to pay claim and significantly lowered fines under this framework just over a year ago. However, inability to pay is just one factor in the FCC’s forfeiture analysis and the agency determined that the repeated, intentional, and egregious nature of Mr. Abramovich’s violations warranted the unprecedented fine. While the FCC’s rejection of the inability to pay claim is not unprecedented, it leaves open the question of whether and how the FCC expects Mr. Abramovich to pay the fine. In many cases, parties receiving large fines can negotiate lower settlements with the Department of Justice when it brings a collection action on behalf of the FCC, but such settlements are not guaranteed. As a result, it appears the FCC’s primary goal was to establish a strong precedent to deter future violators rather than to actually receive payment.

Two Commissioner statements on the item also deserve attention. Although voting to approve the fine, Commissioner O’Rielly dissented in part, questioning the FCC’s assertion that spoofed robocalls cause harm regardless of whether consumers actually hear the message. Commissioner O’Rielly agreed that Mr. Abramovich and his companies intended to defraud call recipients, but he did not find sufficient evidence to indicate that Mr. Abramovich and his companies specifically considered the potential harm to consumers with spoofed numbers or the referenced travel companies. The dissent appears concerned that the FCC automatically will infer an intent to harm any time neighbor spoofing is used, even when such spoofing does not involve fraud, creating a strict liability regime. Meanwhile, Commissioner Rosenworcel highlighted the need for comprehensive regulatory reform to combat illegal robocalls. Specifically, Commissioner Rosenworcel noted the recent federal court decision setting aside key aspects of the FCC’s robocalling rules and requiring the FCC to revisit its definition of an autodialer. The Commissioner also pointed to the glut of outstanding petitions at the agency seeking exemptions and technical limitations to the robocalling rules. The Commissioner signaled that the FCC’s focus on robocalling issues will involve as much rulemaking as enforcement.

We will continue to follow the actions of the FCC and lawmakers and post any new developments regarding robocalling and spoofing here.

Intent to Cause Harm

The FCC’s investigation stemmed from consumer complaints regarding a robocalling campaign advertising insurance products sold by Mr. Roesel’s companies. A medical paging service complained to the FCC when the campaign disrupted its subscriber communications, including service at South Carolina hospitals. Based on the information provided by the complainants, the FCC traced the robocalls to an account registered to Mr. Roesel at his personal address. After subpoenaing his phone records, the FCC determined that Mr. Roesel and his companies allegedly made over 21 million unauthorized robocalls in a three-month span, averaging 200,000 calls a day. Critically, the FCC analyzed a sample of about 82,000 robocalls and found that the caller ID information transmitted belonged to unassigned numbers unconnected to Mr. Roesel or his companies. Further investigation revealed that Mr. Roesel allegedly selected these numbers to mask the source of the calls for consumers and avoid detection by authorities.

The FCC found that the deceptive spoofing, when done in conjunction with an unauthorized robocalling campaign, automatically demonstrated the “intent to cause harm” necessary to violate the Truth in Caller ID Act. Moreover, statements obtained by the FCC from a whistleblower formerly employed by Mr. Roesel indicated he knew the spoofed robocalls violated the law and targeted “economically disadvantaged and unsophisticated consumers” as well as the elderly in his campaign. The FCC determined that the campaign not only harmed the consumers called and disrupted the medical paging service, but also that his actions reduced the supply of quality phone numbers available for assignment. Specifically, because the (unassigned) numbers used by Mr. Roesel and his companies were now linked to allegedly illegal telemarketing, these unassigned numbers have no value to future subscribers.

Personal Liability

Consistent with past enforcement actions involving spoofed robocalls, the FCC found Mr. Roesel personally liable for the alleged violations. First, the FCC noted that Mr. Roesel allegedly authorized and oversaw his companies’ spoofed robocalls. Second, Mr. Roesel allegedly failed to follow normal corporate formalities, mixing personal and corporate accounts, such as by setting up the campaign under his own name and paying for the campaign from his personal funds. The FCC found such personal involvement in the alleged violations sufficient to “pierce the corporate veil” and propose fines directly against Mr. Roesel.

The proposed forfeiture represents a fine of approximately $1,000 for each of the more than 82,000 robocalls allegedly spoofed with an unassigned number. Notably, the Truth in Caller ID Act authorizes the FCC to propose an NAL against entities not holding FCC licenses, without first issuing a “warning” in the form of a Citation. By contrast, the Telephone Consumer Protection Act contains no such exemption and required the FCC to issue the Citation for the alleged unauthorized robocalls by Mr. Roesel and his companies before it can propose forfeitures. The Citation warns that the FCC may impose penalties of nearly $20,000 per unauthorized robocall if Mr. Roesel or his companies commit any further violations. Judging by the FCC’s recent emphasis on stamping out unauthorized robocalls under Chairman Pai, there is every reason to heed such warnings and expect further robocalling-related enforcement actions.

On November 4, 2016, the FCC issued an NAL against Network Services Solutions (“NSS”) and its chief executive for allegedly violating the RHCP competitive bidding rules and committing wire fraud. The NAL represented the first proposed fine by the FCC in connection with the RHCP. The FCC charged NSS with using inside information to gain an unfair advantage in the competitive bidding process, providing gifts and other inducements to get contracts with rural health care providers, inflating the actual costs of its services to these providers, and submitting forged documents in support of its claims for RHCP reimbursement. The FCC proposed a fine of more than $21 million against NSS for the alleged competitive bidding violations, based on forms submitted by rural health care providers serviced by NSS that contained false information from the company. The FCC also proposed the $189,361 statutory maximum fine for NSS’s alleged wire fraud and a recovery of over $3.5 million in reimbursements that the company received due to its alleged violations.

While agreeing that NSS violated the RHCP rules and deserved a hefty fine, then-Commissioner Pai partially dissented from the NAL. First, he argued that the proposed fine calculation included forms submitted more than a year before the NAL, which put them outside of the FCC’s one-year statute of limitations. Second, he noted that NSS did not sign, certify, or submit the rural health care provider forms, and stated that the proposed fine instead should have been based on the invoices NSS sent to the FCC seeking improper reimbursements.

The Amended NAL

The amended NAL leaves NSS’s proposed wire fraud fine and reimbursement recovery in place, but changed the methodology for calculating the fine for the alleged competitive bidding violations in line with the dissent. While recognizing that the rural health care provider forms contained false information, the FCC found that the invoices NSS submitted to the FCC in the year leading up to the initial NAL were the “appropriate basis” for the proposed fine. Finding NSS’s invoices violated the RHCP rules increased the proposed fine by over $855,000 (to $22,358,082) because the invoices contained more improper reimbursement requests than the health care provider forms.

The FCC’s action is quite curious. Prior to this action, the FCC had never amended an enforcement action to change the calculation of a proposed fine, nor had it increased a fine in the same proceeding. We have seen the FCC revise its forfeiture calculations, but it has done so in a Forfeiture Order, not in an amendment, and it had always revised forfeitures downward. Moreover, where the FCC has increased fines, it has done so by issuing a separate NAL to the target company. Here, however, the amended NAL alters the theory on which the violation is based and alters the number of proposed violations. While this action has all the hallmarks of Chairman Pai seeking to conform a past FCC action to his preferred basis, the choice of an amendment to an NAL is novel.

Further, the action raises some interesting questions concerning the application of the statute of limitations to FCC enforcement actions. The FCC order is silent on this front, not addressing how its findings comply with the one-year statute of limitations for forfeiture actions. Section 503(b)(6) provides that, for entities other than broadcasters, no forfeiture penalty may be imposed if the violation charged occurred more than one year “prior to the date of issuance of the required notice or notice of apparent liability.” Just what is the “required … notice of apparent liability” here is not clear. Although the amended NAL only covers alleged violations from the year leading up to the initial NAL (that is, for conduct after November 4, 2015), the amended NAL changed the basis for the violations from the rural health care provider forms to NSS’s invoices. Many of these invoices were filed more than a year before the release of the amended NAL. We believe there is a very real question as to which date is applicable for statute of limitations purposes. If the amended NAL “restarts” the statute of limitations clock, then it appears that many of the violations may be time-barred. By contrast, if the amended NAL simply substitutes new language into the initial NAL, as the FCC order states, then the violations may fall within the initial NAL’s one-year limitations period.

Unfortunately, it is unlikely that this question will be resolved soon. NSS declared bankruptcy in March 2017 and the FCC acknowledged in the amended NAL that bankruptcy protections may prevent it from ordering NSS to pay a fine for the alleged violations or reimburse the RHCP. In a footnote, the FCC states that the “automatic stay” under Section 362(a) of the bankruptcy laws, “may prevent the Commission from ordering NSS to pay the amounts assessed in this NAL.” Thus, for all of its novelty, the FCC’s first-ever NAL amendment may end up as an “empty document” with no practical impact on NSS. NSS’s status may also prevent it from effectively challenging the amendment, so the procedural questions raised by the action may not be addressed either. Resolution of these issues may have to await the existence of a more solvent alleged violator.

PTT commenced providing prepaid calling services – reselling international telephone service – in January 2010. PTT did not obtain authorization to do so under Section 214 of the Communications Act of 1934, did not register as a provider of telecommunications by filing a FCC Form 499A, and failed, at least for several years to make other filings required by international telecommunications carriers and prepaid calling card providers. The NAL does not say how the FCC Enforcement Bureau became aware of PTT’s operations in January 2013, but the NAL notes that PTT sold its cards through grocery stores and Internet distributors and resellers, which outlets may have led to the Bureau’s discovery. A Bureau investigation commenced almost immediately, and, in April 2013, the Bureau sent a Letter of Inquiry to PTT. PTT apparently cooperated with the investigation, promptly sought Section 214 authority (although not special temporary authority while its application was pending), which the Commission granted in May 2013. Over time, extending almost to the time of the NAL, PTT sought to rectify its past failures to register and make other compliance filings. Notably, although the Commission faulted PTT in many instances for its apparent slowness in bringing itself into compliance after the Letter of Inquiry was sent, that alleged fact did not result in the aggravation of the proposed forfeitures.

While the Bureau and PTT entered into a tolling agreement – which explains why the NAL was issued more than one year after the investigation began and PTT began to make its belated compliance filings – the Commission’s proposed penalties confirms the FCC’s historic approach to treating carrier reporting and filing failures as continuing violations until they are cured. In addition, the proposed penalties reflect the Commission standard penalties for many carrier compliance breakdowns and illustrate how the failure to obtain Section 214 international authority, when required, can lead to a cascade of penalties. In particular, the Commission proposed penalties of:

• $100,000 for failure to obtain Section 214 authorization prior to providing international telecommunications services, an amount "[c]onsistent with Commission precedent," for which the FCC cited several recent forfeiture orders against prepaid calling companies;
• $150,000 for failure to file Form 499A (the annual Telecommunications Reporting Worksheet) for 2011, 2012, and 2013 in a timely fashion – $50,000 for each annual filing missed – again citing precedent where carriers had similar lapses;
• $30,000, or $10,000 per year (the base forfeiture amount), for failure to make timely required contributions to the Telecommunications Relay Service ("TRS") Fund for three consecutive annual contribution periods, beginning with 2011-2012, which contributions are based on the Form 499A reports;
• a $23,327 upward adjustment of the penalty for failure to make timely contributions into the TRS fund, 50% (the standard adjustment) of the unpaid contribution amount at the time PTT entered into a payment agreement with the Treasury Department;
• $30,000, or $10,000 per year (the base forfeiture amount), for failure to make timely required contributions to the Local Number Portability ("LNP") cost recovery mechanism for three consecutive annual contribution periods, beginning with 2011-2012, which contributions are based on the Form 499A reports;
• $20,000, or $10,000 per year (the base forfeiture amount), for late payments of regulatory fees – specifically the Interstate Telecommunications Service Provider ("ITSP") which international carriers must pay based on their international end user revenues as reported on their Form 499A reports -- for fiscal years 2011 and 2012;
• $48,000, or $3,000 per filing (the base forfeiture amount), for failure to timely file 16 quarterly certifications required of prepaid calling card companies from the first quarter of 2010 through the first quarter of 2014 (with the exception of the third quarter of 2013 which was timely filed);
• $12,000, or $3,00 per filing (the base forfeiture amount), for failure to timely file its 2011, 2012, 2013, and 2014 annual international telecommunications traffic reports international common carriers must file; and
• $80,000, or $20,000 per year (consistent with prior conditions), for failure to timely file its annual 2011, 2012, 2013, and 2014 customer proprietary network information ("CPNI") certifications that telecommunications carriers must make.

Last week, the FCC issued two Notices of Apparent Liability (“NALs”) against persons identified through various investigative techniques which the Commission concluded were operating unauthorized broadcast stations. Taken together, the cases illustrate, if not altogether clearly, how the Commission may increase forfeitures above the base amount as a result of aggravating circumstances.

In the first case, Enforcement Bureau agents utilizing direction-findings techniques following a complaint – the nature of which is undisclosed in the NAL – found the location of an unauthorized station operating in Manhattan, Kansas. They determined the station signal exceeded the limits for operation under Part 15 of the Commission’s rules (general unlicensed operations) and therefore required a license. No license had been issued to any person at that location on the FM frequency being used. The following day, FCC agents confirmed the operation was continuing and visited the site. Further investigation led them to conclude that the equipment, located in a detached garage that was being rented, was owned and operated by a Glen Rabash. Specifically, in subsequent communications with the FCC by telephone, Mr. Rabash acknowledged he was an amateur radio operator (which the FCC used to conclude he knew the broadcast operation was illegal) and that he would not surrender the equipment if asked to do so (which the FCC factored in to conclude that he had control over the equipment). Based in large part on this evidence of both repeated and willful violation, the FCC proposed the base amount forfeiture of $10,000 for unauthorized operation of a radio station. (Note that this is the base amount for unauthorized operation of any station of any type that requires an FCC authorization. The fact that the violation occurred on a broadcast frequency does not change the base amount.)

Read more . . .

In the second case, Bureau agents in North Miami, Florida, used similar methods “while conducting routine monitoring of the airwaves” to detect the operation of not one, but three connected unauthorized FM stations. In general, the means to identify the owner/operator of the equipment, Fabrice Polynice, were more indirect and convoluted but not materially different in result than in the Rabash case. Apparently, Mr. Polynice would operate only one of the three stations at a time, in what the FCC concluded was an attempted scheme to evade detection. At one of the locations, the FCC personnel seized the equipment. In 2006, Mr. Polynice had been arrested and convicted for violating the State of Florida’s prohibition against operating an unlicensed radio station within the State. The FCC concluded that Mr. Polynice demonstrated a “complete disregard” for federal and State authorizes and laws and, in view of what it called “the egregiousness of the violations, the history of prior offenses, and the degree of culpability,” it adjusted the violation upward by two-and-a-half times to $25,000. In comparison with the Rabash case, one might question the Bureau’s math, given that three stations were operating in the Polynice case on top of a perceived attempt to evade and the prior history. Nonetheless, the Bureau warned that “future violations may subject [Mr. Polynice”] to more severe enforcement action, including but not limited to larger monetary forfeitures, criminal prosecution, and the in rem seizure of his equipment.” The $25,000 forfeiture does not approach the maximum amount the Commission could have assessed for the violations, and the Rabash and Polynice cases in juxtaposition evince an arguably less than harsh application of aggravating factors in the latter case.

These two cases are the most recent cases involving unauthorized operations on FM broadcast radio frequencies that have led to NALs. Earlier in 2012, for example, the Commission issued NALs to unlicensed operators in San Francisco, CA, and Pompano Beach, FL. In the San Francisco case, the violator was an amateur radio licensee against whom the Enforcement Bureau proposed a forfeiture of $17,000 for unlicensed operation ($10,000) and refusal to permit inspection of his station (by failing to open the door when FCC agents arrived) ($7,000). For both violations by this operator, the base forfeiture amounts were assessed. In the Florida case, the operator was only cited for unauthorized operation, but the forfeiture amount ($20,000) was doubled from the base because the violator had received earlier notices of unauthorized operation from the FCC in 2010. Nonetheless, this Florida operator did not appear to demonstrate the same level of disregard for law and regulations as Mr. Polynice.