New York, NY US - New York, NY November 5, 1997 (ICB TOLL FREE NEWS) In August, 1997, the Federal Court of Appeals for the 1st Circuit upheld a district court judgement regarding the toll-free number 1-800-FOR LEASE. This case involved a finding by the jury that the number wrongfully denied the plaintiff, Play Time Inc., by the defendant WorldCom Inc. was, in and of itself, worth $50K to the plaintiff.
The decision is, at first glance, a fairly straightforward ruling on a matter of contract law and civil litigation procedures. The court ruled, in essence, that WorldCom blew it by not keeping their right hand informed of what a left hand was doing, and that they breached a contractual obligation as a result.
The court also upheld the trial court's method of handling the matter, including allowing the jury to decide the value of the number at issue, and the method of valuation chosen. In those respects the opinion is unremarkable, just like any other breach of contract litigation, except this one involved an 800 number rather than a car, or a business, or a book deal.
In the process of making its ruling, however, the court touched on two issues that are extremely important vis-a-vis the toll free issues 800 marketers are currently dealing with at the FCC. These come under the headings of (1) the inherent value of vanity numbers, and (2) the prohibition on transfers.
Inherent Value of Vanity Numbers --------------------------------
Both the trial court judge and the appellate court panel had no difficulty with the concept that there is an inherent value to a toll free vanity number. The number had value to the plaintiff solely by reason of his intended but not yet implemented business plan. The jury, hearing evidence from both sides, determined that the number was worth $50,000 to the plaintiff. This was obviously not value resulting from years of use and public familiarity. It was an inherent value, created solely by the plaintiff's intellectual exercise of recognizing the vanity pneumonic and developing a business plan to exploit it. If were true that numbers have no inherent value, the plaintiff would not have suffered any monetary damage. But the jury found convincing evidence of monetary damage to the tune of $50K.
It is important to understand the subtle nuance here. This was not a jury finding that the plaintiff had lost $50K in profits or business because he did not have the number--it is possible for my loss of something that has no inherent value in and of itself, to nonetheless cause me to lose money. But that is not what this case was about, or at least not the basis on which it was decided and the damages awarded. Rather, this case involved a finding by the jury that the number wrongfully denied the plaintiff by WorldCom was, in and of itself, worth $50K to the plaintiff. The jury was asked to determine the "fair market value" of the number.
In so doing, they applied a "willing-transferor-willing-transfer" standard. This means that they assumed there were two parties, one willing to buy and one willing to sell the number. They further assumed that these hypothetical parties would negotiate an agreement that was mutually acceptable to both of them - the "ideal" compromise, as it were. Their task was to decide, based on all the evidence they heard at the hearing, what the dollar figure was at which these two hypothetical parties would agree. They ruled it was $50K, and that was based, at least in part, on evidence that the plaintiff had almost agreed to pay $50K to a third party (the one to whom WorldCom improperly transferred the number), a deal which fell apart not because of the purchase price, but because of an inability to agree on a nonrefundable deposit.
Prohibition on Transfers ------------------------
WorldCom argued "that the Number had no market value because its sale, brokering, barter, or release for a consideration was prohibited." This did not sway the appellate court. The court correctly noted that, lack of "ownership rights" and "prohibitions on transfers" notwithstanding, an end user still has the right to control its 800 service, including ultimate right to direct the status (reserved, active, or assigned) to its own toll free number. It was this right that WorldCom deprived the plaintiff of when is mis-assigned his promised number, and the court had not problem with basing a $50,000 judgment on the value of the lost number.
This case thus supports what toll-free advocates have argued to the FCC, namely, that the oft-stated policy that numbers are a public resource and that users do not obtain "ownership" rights in them, is not really relevant to the issue of the commercial transfer of numbers. You can legislate, regulate, and pontificate away all the "property" and "ownership" rights you wish, but at the end of the day, toll free customers still have a number of rights and benefits associated with the particular toll free number assigned (or to be assigned) to them, and that bundle of rights can often be quite valuable in a monetary sense. The appellate court recognized this (though it didn't say it in quite those words) and was therefore not blinded by the prohibition on transfers.
Impact on FCC Proceedings -------------------------
This opinion will not necessarily be binding on the FCC. The case does not turn on an interpretation of any federal communications law or FCC rule or policy. But, even though it is not absolutely binding on the FCC, it is nonetheless a very useful precedent. It can't hurt, and it may help advance the cause of toll-free users.
Other Observations ------------------
The facts of this case also provide some guidance about how one might want to go about drafting any agreements for the transfer of numbers. While there is no question that WorldCom acted badly here, most of the bad faith was after the fact. The real problem arose when a midwest WorldCom rep assigned the number, unaware that an east coast colleague had already promised the number. Moreover, even in situations where the carrier/RespOrg gets has its act together and does everything in a careful manner, there is always the possibility of a slip between the cup and the lip. These deals are entered into on the theory that the RespOrg will be able to snag the desired number as soon as it attains available status in the database. Even a few seconds, however, may be time enough for some other suitor to beat the buyer's RespOrg to the draw.
Thus, attorneys advising parties on this might advise that the parties employ
the services of a consultant such as ICB to map out the technical steps required
and to baby sit the process.
Author/Correspondent's Profile: Judith Oppenheimer, Publisher, ICB Toll Free (800/888) News