Spam Lawsuits Weigh On Twilio, Group Texting Apps

Group messaging apps continue to be both a hot communications tool and a legal minefield. Like other developers who decided to build first and ask permission later, three “club texting” services remain mired in class action suits that could force them to pay hundreds of dollars for each unauthorized text message.
Court filings last week reflect new developments. They show that Twilio, GroupMe and Disco can’t claim free speech as a defense, but that the companies may yet be rescued by the FCC.
The Problem
In the case of Google-owned Disco, which let users enter up to 99 phone numbers for a group message, the company’s problems began when it sent out a promotional text to every number that a user entered into the app. Even if a Disco user had yet to send a text message, everyone included in a group received a text saying “Disco is a group texting service. Standard SMS rates may apply or chat for FREE w/ our app –…”
Class action lawyers soon pounced. In two lawsuits filed in California last summer, cell phone owners accused Disco of violating the Telemarketing and the Telephone Consumer Protection Act (TCPA), a law that provides a fine of up to $500 for every illegal message.
Google (NSDQ: GOOG) responded by trying to have the case thrown out on free speech grounds. But last week, U.S. District Judge Yvonne Rogers refused, saying the Disco promotional message was unprotected commercial speech. And in what may be an even worse development for Google, Rogers also refused to rule that Disco was not an autodialer for the purposes of the TCPA. The app, she noted, “harvested” phone numbers and sent messages “en masse.”
Twilio, GroupMe and the FCC
Disco is not the only group messaging service ensnared in class action misery over “SMS Spam”. Last year, GroupMe and Twilio (which provides the back-end “short codes” that power group messaging) were also tagged by a TCPA lawsuit in the same court.
That lawsuit says the companies should pay not just for unauthorized promotional messages but also for messages that users sent to friends who had not opted-in to the service. The case provides the example of a user who received dozens of unwanted texts after he was added to a group called “Poker.”
In response, Twilio and GroupMe asked the court to suspend the case until the FCC decides if “club texting” services should be considered as a form of telemarketing. In January, the court agreed to the stay.
GroupMe is arguing in part that its messages are not telemarketing if users have given oral consent for others to use their numbers. Meanwhile, Twilio says that the FCC shoudl classify it as a “common carrier” that is immune from liability (in the same way that AT&T (NYSE: T) is not responsible for obscene phone calls).
The most recent development in the case is a filing last week from GroupMe which asks the court to reject the plaintiffs’ request to lift the stay. The plaintiffs have argued that a recent FCC decision means they can go forward against GroupMe even though the agency is still deciding the “common carrier” question.
A Headache for Both App Makers and Advertisers
These lawsuits are spooking app makers and the text messaging industry as a whole, according to Derek Johnson of Tatango, a company that offers help with SMS marketing. Johnson says that opportunistic class action lawyers are targeting app makers because they have deeper pockets than the consumers who are sometimes the ones to blame for violating the TCPA.
“There’s tons of apps and websites that use these apps to send messages. The average [settlement] is $275 per message. It’s just going to get worse.”
A court search shows that no law suits have been filed against popular messaging services Kik, Whatsapp or PingMe.
But in addition to the lawsuits against the app makers, lawyers are also targeting advertisers who trip over the TCPA in their SMS marketing campaigns. In recent years, everyone from Burger King to NASCAR to Timberland to publisher Simon & Schuster (NYSE: CBS) have paid out millions to settle class action suits. In February, Payless shoes stopped accepting claims for a marketing campaign that sent texts such as “PSST …Payless Insider, Ur the 1st to know BOGO starts TODAY 9/29!”
Johnson says the lawsuits in the media may be just the tip of the iceberg.
“I would bet that the majority of text message spam cases never make it to a class action lawsuit and get settled before taking it that far.”
What Next
In the case of Disco, the judge’s refusal to dismiss the complaint means the class action will continue to move towards a trial unless Google decides to settle. Disco itself appears to have been shut down last when Google folded a unit called Slide that had created the messaging service. (Google is likely ruing its decision to acquire Slide — the company’s other legacy is another lawsuit
in which virtual pet owners are suing over the shuttering of Slide’s SuperPoke Pets.)
Meanwhile, GroupMe and Twilio will continue to cross their fingers for a favorable FCC ruling to deliver them from class action hell. After the GroupMe lawsuit appeared last year, an industry source told Business Insider, “This is a company-killing lawsuit.” GroupMe is expecting the FCC to ask for comments on its “club texting” petition in the next 60 days.
In the bigger picture, the lawsuits are a cautionary tale for both advertisers and app makers. While invasion of privacy lawsuits are becoming almost commonplace, “text spam” appears to be especially sensitive because it is so intrusive and because many cell phone users now pay for incoming messages.
Finally, the existence of the TCPA and its potential $500 a message penalty means violations carry a nasty bite. Opt-in should be the watchword for all app makers and advertisers near the space.