January 2008 - Channel Crossing: Legal

Do Not Call or the FTC May be Calling on You!

By Linda Goldstein

Compliance with the National Do Not Call List requirements remains a top priority for the Federal Trade Commission (FTC) as evidenced by the FTC’s recent announcement of six settlements with penalties totaling nearly $7.7 million.

In a recent sweep of cases involving a variety of companies and individuals, the FTC sent a clear message to the industry that it would continue to aggressively monitor compliance with the Do Not Call List provisions of the Telemarketing Sales Rule and punish violators with a vengeance. These recent cases also shed some interesting light on how the FTC will interpret certain provisions of the Telemarketing Sales Rule and in particular, the scope of the existing business relationship exemption, upon which many marketers attempt to rely.

Under the Do Not Call provisions of the Telemarketing Sales Rule, marketers are exempt from scrubbing the names of consumers with whom they have an existing business relationship. An existing business relationship can be established in one of two ways, and the length of the exemption varies, depending on the nature of the contact between the consumer and the marketer. First, a marketer enjoys an existing business relationship with a consumer who has purchased a product or service from that marketer for a period of 18 months following either the date of the purchase, or in the case of a subscription or continuity program, the last date that goods or services are delivered.

Secondly, a marketer can claim an existing business relationship with a consumer who has made an inquiry to the marketer, even if the inquiry does not result in a purchase transaction. Many marketers have historically relied on a liberal interpretation of the “inquiry” prong of the existing business relationship exemption to place calls to consumers who have not actually made a purchase, but who have otherwise contacted the marketer or the marketer’s agent or affiliate in response to an advertisement. At least two of the six cases brought by the FTC in this latest enforcement sweep suggest that marketers construing the existing business relationship liberally may be acting at their peril.

In FTC vs. Craftmatic, Inc., the FTC alleged that Craftmatic, Inc., violated the Telemarketing Sales Rule by placing calls to consumers on the Do Not Call List, even though these consumers had actually provided their telephone numbers to Craftmatic in connection with a sweepstakes promotion. According to the allegations of the complaint, Craftmatic sent a sweepstakes offering to consumers via direct mail. The direct-mail solicitation invited consumers to return a card by mail in order to enter the sweepstakes, and to include their telephone number on the entry form. Consumers were told that their telephone number would serve as their sweepstakes ID number. Craftmatic then proceeded to call those consumers who responded to the sweepstakes offer to promote their adjustable beds without scrubbing the name against the Do Not Call List. The FTC alleged that Craftmatic violated the Telemarketing Sales Rule because it called persons who were on the Do Not Call List without signed written consent to do so. The FTC noted that the mere fact that consumers responded to a sweepstakes offer and provided their telephone numbers to Craftmatic in order to enter the sweepstakes did not constitute signed written consent for Craftmatic to call, because consumers thought they were providing the telephone number only in connection with the sweepstakes. Interestingly, the fact that these consumers had responded to Craftmatic’s sweepstakes offer and provided their telephone number did not qualify as an “inquiry” for purposes of establishing the existing business relationship either, presumably because the consumer’s inquiry was limited to the sweepstakes and did not relate to any product offer.

The FTC’s position in Craftmatic is an important reminder to marketers that a simple contact with the consumer is not enough to establish consent on the part of the consumer to receive a call, or to establish an existing business relationship sufficient to qualify for the exemption. In order to qualify for the existing business relationship exemption, it would appear that the inquiry must be sufficient to indicate interest in the marketer’s product or service. Furthermore, in order to qualify as consent necessary to override the Do Not Call List, the consent must be in writing and signed, and again must reflect intent to consent to receive a sales call. Consent to enter a sweepstakes or qualify for some other consumer incentive is not sufficient to establish consent to receive a sales call.

The FTC’s case against Ameriquest reflects a similarly narrow view of the existing business relationship exemption, albeit in a different context. In that case, Ameriquest engaged various lead generators to develop leads of consumers who were interested in receiving information about low-cost mortgages. The lead generators engaged by Ameriquest established various websites through which consumers provided information and indicated an interest to be contacted by a lender with information on low-cost mortgages. The names and phone numbers of these consumers were then provided to Ameriquest, which placed outbound calls to these interested customers. Ameriquest maintained that the telephone calls to these consumers were covered by the existing business relationship exemption because these consumers had indicated an express desire to be contacted by a lender. The FTC maintained that because these leads were generated by independent third parties, the existing business relationship was established with the lead generators, but could not be passed on to Ameriquest. For any companies that obtain leads through third-party agents, this is a troubling proposition.

While the FTC’s position-if taken to its logical conclusion-would have had very serious consequences for the future of lead-generation marketing, the settlement reached with the FTC does preserve the ability to rely on the existing business relationship with respect to leads generated by a third party provided that certain disclosures are made to the consumer. Specifically, the consent decree requires that in order to establish an existing business relationship exemption to the Do Not Call prohibitions, the lead generators must disclose to consumers that they will receive a phone call, the maximum number of sellers who will contact them, and if known, the identity of the seller. While this settlement is binding only upon Ameriquest, other marketers who engage in similar programs and rely on similar types of leads would be well advised to instruct their lead generators to make similar disclosures.

Finally, a third case brought by the FTC against ADP, the providers of security alarm systems, reinforces the FTC’s determination to expand the net of potential liability in the telemarketing arena and hold marketers liable for the actions of their agents and service providers. In this case, ADP was held liable for telemarketing calls placed by two of its authorized dealers to persons on the Do Not Call List. While ADP had also placed its own calls in violation of the DNC, the FTC alleged that it was also responsible for the failure of its authorized dealers to honor the provisions of the DNC. This is similar to the approach taken by the FTC last year against DirecTV, which was forced to pay millions in penalties for calls made by its telemarketing agents to consumers on the DNC List. In this case, ADP was fined $2 million.

This recent sweep of cases is a chilling reminder of the FTC’s commitment to vigorously enforce the provisions of the FTC. Recent enforcement actions, including these latest six, illustrate a number of trends emblematic of the FTC’s approach to enforcement in this area: First, the requirements of the TSR and Do Not Call provisions in particular will be very narrowly and conservatively interpreted by the Commission; the exemptions will be very narrowly construed; marketers will be held independently liable for the actions of their agents; and violations will be severely punished with very significant fines and penalties.

Linda Goldstein is a partner and chair of the advertising, marketing and media division at Manatt Phelps & Phillips LLP in New York. She can be reached at (212) 790-4544.


1 Comment

  • By Dolores, May 31, 2009 @ 11:09 am

    Those prolific sweepstakes, especially by the vacation sales industry, are nothing more than a ruse to circumvent the Do Not Call (DNC) provisions. The fact that a yearly grand prize is awarded is irrelevant. The primary question should be consumer INTENT. Did the consumer enter the sweepstakes with the remote hopes of winning the grand prize? Or, did the consumer enter the sweepstakes as an “express” and/or “written” request and INTENT to authorize relentless telemarketing solicitation calls?

    I seriously doubt the latter!

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