Are You Using Sweepstakes to Skirt the Do-Not-Call List?

Viewpoint: Here's Why the FTC Could Have Your Number

By Published on .

Natasha Shabani
Natasha Shabani
In these rough economic times, companies are vigorously seeking new ways to expand their customer base and reach out to a greater number of people in an effort to jump-start sluggish sales. Thus, many companies have turned to the use of sweepstakes-entry forms as a way to harvest consumers' telephone numbers for purposes of telemarketing. If done correctly, this may be a legitimate marketing tool; however, companies that are not extremely cautious and diligent in their use of this technique may find themselves in hot water with the Federal Trade Commission.

The FTC recently has addressed this very issue and, in more than one instance, has cracked down on companies that violated Do Not Call regulations by calling telephone numbers obtained via sweepstakes entry forms.

Telemarketing practices are regulated by the FTC and the Federal Communications Commission. The National Do Not Call Registry is managed by the FTC and enforced by the FTC, FCC and state officials.

However, there are two exemptions that allow telemarketers to contact even those consumers whose telephone numbers are on the registry, under certain limited circumstances. The first exemption applies when there is an "established business relationship" between the consumer and the seller. The FTC and FCC rules provide that a company who has an established business relationship with a consumer who is on the registry may nonetheless call this consumer for up to 18 months after the consumer's last purchase or last delivery, or last payment, and up to three months after any inquiry or application by the consumer, unless the consumer asks the company not to call again. Under the second exemption, companies may contact consumers on the registry if they have obtained the prior express permission of those consumers. Such express permission must be evidenced by a signed written agreement between the consumer and the seller that states that the consumer agrees to be contacted by this seller, including the telephone number to which the calls may be placed. If the consumer subsequently requests not to be called, the seller must stop calling the consumer regardless of whether the consumer continues to do business with the seller. Telemarketers may not call consumers on the registry to request written permission to be called.

Regarding the "established business relationship" exemption, the FTC has warned that it is to be narrowly crafted and should be consistent with "consumer expectations." In particular, the key issue in showing an established business relationship based on a consumer inquiry is whether, under all the circumstances, the consumer has taken an action such as would "reasonably lead to an expectation of a prompt follow-up telephone contact."

Similarly, with regard to the "express agreement" exemption, the FTC has explicitly stated that such written agreement must be "clear and conspicuous," and that it must include the consumer's signature demonstrating his or her assent to be called by or on behalf of the particular seller for telemarketing purposes. The FTC also has expressly stated that attempting to obtain a consumer's "express agreement" through subterfuge, such as by use of a prize promotion or sweepstakes entry form, does not constitute an affirmative defense to the do-not-call requirements. Specifically, the request for express agreement cannot be hidden; printed in small, pale, or noncontrasting type; hidden on the back or bottom of a document; or buried in unrelated information where a person would not expect to find such a request.

The FTC has noted that, in the past, sweepstakes entry forms often have been used in a deceptive manner to obtain "authorization" from a consumer to incur a charge or some other detriment. Accordingly, FTC scrutiny was already in place relative to any use of such sweepstakes entry forms as a way to get a consumer's permission to place telemarketing calls to his or her number.

In 2007, the FTC brought a complaint against Craftmatic Industries, the automatic bed maker. Craftmatic ran a sweepstakes offering consumers who filled out an entry form the chance to win a Craftmatic bed. The sweepstakes form indicated that a consumer's telephone number was the entry number as well. However, the form did not indicate that by filling it out consumers would receive sales calls, and the company did not seek consumers' express consent to call them. Craftmatic called tens of thousands of consumers who entered the sweepstakes, including calls to phone numbers that were listed on the registry. In settling the complaint, Craftmatic agreed to pay a $4.4 million civil penalty. The FTC sent a clear message in its pursuit of Craftmatic that a sweepstakes-entry form does not suffice to establish a prior business relationship, nor does a consumer's submission of a sweepstakes entry form constitute express authorization to be called.

The FTC went even further in the All In One Vacation Club case in 2009. All in One, a telemarketer of time shares and vacations, offered a sweepstakes to consumers interested in winning vacation packages and other prizes. A consumer who wanted to participate in one of All In One's sweepstakes could do so by filling out an entry form made available at kiosks at various retail establishments. The entry form required a consumer to provide his or her name, telephone number, home address, e-mail address and signature before the consumer could enter the sweepstakes. All In One would then call these consumers, many of whose numbers were on the registry.

The front of the sweepstakes entry form contained the following statement in a clear and conspicuous font and size: "This advertising material is used for the purpose of soliciting sales of a vacation ownership plan." On the back of the form, the same statement was repeated in large font, and in smaller font was the following statement: "By filling out this entrance form you are consenting to be removed from any no call registry for the specific purpose of allowing the sponsor to contact you with a discounted travel opportunity that is separate from the sweepstakes offered above."

The FTC found that the completed sweepstakes-entry forms did not constitute a "consumer's inquiry or application regarding a product or service offered by the seller" under the Do Not Call provisions. The form would not lead a reasonable consumer to expect that, by completing it, the consumer would receive a prompt follow-up call by the seller about its time shares and other vacation offerings. Thus, the FTC concluded, All In One did not have an established business relationship for calls to numerous consumers' numbers on the registry.

Further, the FTC found, the completed sweepstakes-entry forms also did not constitute "express agreement" under the Do Not Call provisions, despite the presence of the fine print on the back of the form. The form did not advise consumers in a sufficiently clear and conspicuous manner that, by putting down his or her phone number on the entry form, the consumer was giving express authorization to be contacted by All in One for telemarketing purposes. Accordingly, the completed sweepstakes-entry form was also not an express written agreement that clearly evidenced the consumer's authorization for calls by or on behalf of the seller.

The FTC imposed a civil penalty of $275,000 on All in One for its Do Not Call violations.

The bottom line is that a company wishing to collect telemarketing leads via a sweepstakes-entry form must be very careful in the creation of its entry form. The entry form must be extremely clear and conspicuous in its disclosure to consumers that their entry-form information will be used for telemarketing purposes. Such disclosure would need to be clearly stated in reasonably large print on the front of the sweepstakes entry form, and include a signed statement by the consumer so as to constitute "express agreement" under the Do Not Call provisions.

Natasha Shabani is an attorney with Rutter Hobbs & Davidoff in Los Angeles.
Most Popular