Electronic Retailer - March 2012 - 38

BY JEFFREY D. KNOWLES AND JONATHAN L. POMPAN

FTC’s Do Not Call Report Holds Lessons for Marketers
In December, the Federal Trade Commission (FTC) submitted its biennial report to Congress on the use of the Do Not Call Registry. The report, which is required under the Do-Not-Call Fee Extension Act of 2007, provides statistics on use of the list by consumers and businesses. Beyond the usage statistics, the report provides practical guidance for telemarketers and companies that provide leads to telemarketers when it comes to Do Not Call compliance. Among that guidance is a lengthy discussion of the “existing business relationship” to the Do Not Call Registry. Provisions within the FTC’s Telemarketing Sales Rule (TSR), which established the National Do Not Call Registry, and similar Federal Communications Commission (FCC) regulations provide a narrow exemption through which companies may call a consumer whose telephone number is listed on the Do Not Call Registry. That exception is for companies that have an “established business relationship” with a consumer. Under TSR and FCC rules, an “existing business relationship” exists when “(i) the consumer’s purchase, rental, or lease of the seller’s goods or services, or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call; or (ii) a consumer’s inquiry or application regarding a product or service offered by the seller within the three months immediately preceding the date of a telemarketing call.” The FTC report notes that there is a significant amount of confusion among consumers and marketers about the “existing business relationship” exception. Many consumers do not know that the exemption exists and are surprised to receive calls from marketers after adding their phone number to the Do Not Call Registry. Other times, it can be unclear whether a bona fide relationship exists because the telemarketing call may be coming from an affiliate of a company with which the consumer has done business. The FTC and FCC have traditionally held that a consumer’s established business relationship with a particular business entity does not extend to affiliates or subsidiary companies unless the consumer would reasonably expect those organizations to be included in its relationship with the original company. Given regulators’ views about the limits of the existing business relationship exemption, it should be no surprise that the FTC writes in the report that “telephone calls from telemarketers to phone numbers provided by lead generators generally do not fall within the established business relationship exception because, while the consumers may have a relationship with the lead generator, they do not have an established business relationship with the seller who has purchased the leads.” To drive its point home, the FTC report touches on several enforcement actions that resulted from businesses making telephone calls to consumers on the Registry after acquiring the consumers’ names from a lead generator. The companies mentioned in those examples ended up paying civil penalties to settle charges that their calls violated the TSR. For example, the FTC reported that in one case a “‘lead generator’ collected information on consumer interests through web advertising, by offering coupons or samples, or simply by ‘cold calling’ consumers in order to determine whether the consumer has any interest in a particular product or service, such as debt relief or home alarms.” According to the FTC, the “[l]ead generators responsible for these so called ‘call verified leads’ often fail to remove numbers listed on the Registry before calling consumers.” The FTC report also details how “some telemarketers and sellers have acquired leads from lead generators and used them in telemarketing campaigns without screening the numbers called to remove numbers listed on the Registry. In this way, a single sales pitch can produce multiple illegal calls, generating one or more calls from both the lead generators and the telemarketer.” Another tactic utilized by marketers to exploit the “existing business relationship” exemption is to solicit sweepstakes entries from consumers and then claim that the consumer’s entry in the sweepstakes meets the threshold for the exemption. However, according to the report, the TSR clearly states that a sweepstakes entry form does not create an existing business relationship. Since 2007, the FTC has levied civil penalties totaling more than $7 million dollars against telemarketers for violations of the TSR’s existing business relationship requirement by purchasing telephone numbers and consumer information from lead generators or utilizing telephone numbers obtained via sweepstakes entries. Whenever conducting outbound telemarketing campaigns, marketers need to be cognizant of Do Not Callrelated regulations and put in place policies and procedures to ensure compliance. Over the past several years, the FTC has established a reputation for enforcing the Do Not Call regulations aggressively and there is no indication that it intends to be any less vigilant in the future. Jeffrey D. Knowles is a partner at Venable LLP and chair of the firm’s Advertising, Marketing and New Media Group. Jonathan L. Pompan is of counsel at Venable LLP. They can be reached at (202) 344-4000.

CHANNEL CROSSING: LEGAL
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Electronic Retailer - March 2012

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