FTC obtains first Telemarketing Sales Rule verdict

Telemarketing Sales Rule and Do Not Call RegistryOn May 25, 2016, the FTC obtained its first-ever jury verdict to enforce the Telemarketing Sales Rule (TSR) and its Do Not Call (DNC) Registry.  By its verdict, the jury found that three Utah-based firms and their owner engaged in deceptive and unlawful telemarketing campaigns pitching movies, including making more than 117 million illegal calls to consumers, in violation of the FTC’s TSR.  The verdict is a culmination of approximately five years of litigation between the FTC, the firms, and their owner.  A Utah federal court will now decide what relief to impose against the firms and their owner.  It is important to note, however, the occurrence of a jury trial in this case was prompted only by the penalties sought by the FTC.  In most instances, an FTC enforcement action is tried as a bench trial.

FTC’s Telemarketing Sales Rule

The FTC’s Telemarketing Sale Rule, which was amended in 2003, 2008, and 2010, gives effect to the Telemarketing and Consumer Fraud and Abuse Prevention Act, which provides the FTC and states attorney generals with law enforcement tools to combat telemarketing fraud, gives consumers added privacy protections and general defenses against unscrupulous telemarketers, and helps consumers tell the difference between fraudulent and legitimate telemarketing.

One of the most significant parts of the Telemarketing Sale Rule is that it prohibits calling consumers who have put their phone numbers on the National Do Not Call Registry.  Other key provisions:

  • require disclosures of specific information
  • prohibit misrepresentations
  • limit when telemarketers may call consumers
  • require transmission of Caller ID information
  • prohibit abandoned outbound calls, subject to a safe harbor
  • prohibit unauthorized billing
  • set payment restrictions for the sale of certain goods and services
  • require that specific business records be kept for two years

United States v. Corps. of Character LC

In United States v. Corps. Of Character LC, a case brought by the Department of Justice (DOJ) on behalf of the FTC in May 2011, the FTC alleged in its complaint that Forrest S. Baker III, and three Utah firms (Feature Films for Families, Inc., Corporations for Character, L.C., and Family Films of Utah) that he controls violated the Telemarketing Sales Rule and the FTC Act numerous times and deceived consumers about where the proceeds from their movie purchases would go.

In March 2015, a Utah federal court resolved a number of the legal issues in the case, including rulings that telephone calls that defendants argued were surveys, fundraising, or informational calls, were in fact actually illegal telemarketing.  However, the court also ruled that certain claims made by Corporations for Character in charitable solicitation calls were not misleading and that the government would need additional computer records to challenge other representations, as well as concluding a jury trial would be necessary to resolve several factual issues.

DOJ Presents Evidence of 117 Million Violations of Telemarketing Sales Rule

During the eight-day jury trial, the DOJ presented a number of FTC witnesses alleging that the defendants’ activities included a nationwide calling campaign that was conducted by Corporations for Character under the alias “Kids First.”  In relation to the Kids First campaign, the DOJ presented evidence that telemarketers offered to send consumers two complimentary DVDs and requested feedback on whether the movies should be included on a list of recommended movies.  The DOJ told the jury that through the Kids First campaign defendants’ telemarketers called millions of numbers on the Do Not Call registry during the campaign and told consumers that “all of the proceeds” from the sale of Feature Films for Families DVDs would be used to complete a recommended viewing list of the nonprofit Coalition for Quality Children’s Media.  However, in reality, the DOJ said Feature Films for Family had contracted to receive 93 percent of the sales to these consumers.

The DOJ also presented evidence that in 2009 Feature Films for Families called consumers to urge them to buy tickets to see “The Velveteen Rabbit,” a film produced by Baker and released in theaters before going to DVD.  The DOJ set forth that the telemarketers made no effort to avoid calling consumers on the Do Not Call Registry, making more than 2.5 million calls to registered numbers.

The jury also heard testimony from consumers who received telemarketing calls even after telling Feature Films for Families’ telemarketers not to call.  Call records presented at trial showed that these consumers were not alone.  In pitching Feature Films DVDs, the DOJ said that the defendants’ telemarketers called tens of millions of consumers who had made do-not-call requests.

As part of its verdict, the jury found the defendants responsible for approximately 117 million violations of the Telemarketing Sales Rule, including 99 million illegal calls to telephone numbers listed on the Do Not Call registry, as well as more than four million additional calls in which the defendants’ telemarketers made misleading statements to induce DVD sales.

Jury Finds Six Violations of Telemarketing Sales Rule

The jury’s verdict encompassed six separate violations of the Telemarketing Sales Rule, including: including violations of the FTC’s regulations requiring telemarketers to use caller identification names that tell consumers what seller is calling, and restrictions on telemarketers making calls to consumers without connecting the call to a sales representative within two seconds of the consumer’s greeting.  The jury also found the defendants had actual or implied knowledge of the aforementioned violations, allowing the Utah federal court to assess civil penalties under the FTC Act.  Penalties of up to $16,000 per violation can be assessed against businesses that violate the Telemarketing Sales Rule.

At $16,000 a Pop, Violations of Telemarketing Sales Rule do not Come Cheap

The recent jury verdict against Baker and his three firms should serve as a warning for businesses engaged in telemarketing, especially in light of the fact that the FTC can impose up to a $16,000 fine per violation of the Telemarketing Sales Rule.  Furthermore, the verdict shows that regardless of the substance of a telemarketing sales call, if it is made to a consumer on the Do Not Call registry, then it will be automatically counted against a business.  This gives the Do Not Call registry real teeth in the fight against unwanted telemarketing sales calls.  Companies engaged in telemarketing would do well to heed the warnings of the above case.  If not, they might find themselves on the wrong end of a lopsided verdict, leaving the company to pay hundreds of millions or more in potential fines under the Telemarketing Sales Rule.

* Photo Cred.: techlicious.com

Copyright 2016