The Existing Business Relationship Exception
Most companies who engage in any kind of telemarketing are by now very aware of the federal "Do Not Call" (DNC) laws and the duty to "scrub" lists prior to calling. There are also important exceptions to this law, one of which is the Existing Business Relationship (EBR) exception.

Under the federal DNC laws, a seller may make calls to persons with whom they have an EBR, whether or not that person's telephone number appears on the federal DNC list. An EBR arises whenever a consumer contacts a seller about that seller's goods or services and gives his or her telephone number for the seller to respond. At that point, the seller is free to telephone that consumer for a period of three months with no requirement to check whether the consumer's telephone number appears on the federal DNC list.

This exception to the federal DNC laws is intended to allow businesses to respond to consumer inquiries made in the ordinary course of business without fear of violating the law.

Naturally, many of these consumer inquiries are generated by the business's own marketing and lead generation efforts. Thus, the EBR exception goes hand-in-hand with lead generation.

Lead Generation Companies
What about companies whose business it is to generate leads that are sold to other companies? In that instance, the consumer is really not inquiring about the goods and services offered by a particular seller. Rather, they are usually responding to a third-party advertisement or direct marketing piece about a good or service in general.

An example is an email offer for refinancing a home mortgage at a lower interest rate - "fill out this short form and you'll receive offers from three lenders competing for your business" - with no reference being made to a particular lender.

If a consumer responds to third-party lead generation, the lead generator then sells the contact information to the sponsoring seller or to the highest bidding seller that can meet the consumer's need. Certainly, there has been some inquiry-based business relationship established.

However, there technically has been no consumer-initiated inquiry to the seller - all consumer contact has been with the lead generator. To whom does the EBR exception apply? The seller? The lead generator? Both?

The FTC's Opinion
On July 19, 2006, the FTC released a Staff Advisory Opinion addressing this issue, at least in the context of internet-based lead generation.* The FTC stated that, in general, the EBR exception would not apply to the seller where the consumer responded to a lead generator.

The rationale for the opinion is as stated above: because the consumer did not respond directly to the seller, he has no relationship with the seller. Therefore, the EBR exception cannot apply under the express language of the law.

However, the staff carved an interesting, and potentially far reaching, exception to that general rule. Despite the express language of the statute, the FTC staff stated that it would likely take no action against a seller who utilized a lead generator so long as the lead generator disclosed two things before the consumer was required to supply their telephone number to the lead generator: (1) That the consumer would receive telemarketing calls as a consequence of supplying their telephone number to the lead generator; and (2) The maximum number of entities from which the consumer would receive calls.

The opinion further stated that the number of entities disclosed should be limited only to those who truly "matched" the consumer's needs. Mentioning a catchall list of hundreds of potential seller/callers would not suffice.

What to take away from the opinion?
The most encouraging part of this advisory opinion is the FTC's awareness that the express language of the federal DNC laws does not effectively address many real-world situations. In fact, strict application of the language can frustrate a consumer's expectations and unreasonably limit their options in the marketplace.

In recognition of the law's shortcomings, the FTC is willing to use affirmative non-enforcement of the law as a tool to extend a kind of special exemption to sellers who take reasonable measures to ensure that the ultimate goal of those laws, protecting a consumer's expectation of privacy, is served.

When a consumer responds to any type of inquiry-based marketing, there's a reasonable expectation that they will receive a response. In the context of lead generation companies, the consumer is clearly not expecting a response from the lead generator, but from companies that provide the good or service the consumer wants.

However, it is equally true that a consumer does not intend to "open the floodgates" to calls from an unlimited number of sellers. In light of both of these concerns, the FTC's opinion is a well-reasoned approach that balances consumer privacy with realistic consumer expectation.

What should you do?
Lead generators should immediately modify their internal practices, policies, and procedures to adhere to the FTC's opinion. Careful consideration should be given to the two disclosures mandated by the FTC.

Make certain that any published material intended to generate an inquiry includes those two disclosures. With internet lead generation, it would be advisable to require the consumer to click checkboxes acknowledging their permission to being contacted by telephone.

Sellers utilizing third-party lead generators should examine the lead generator's practices to ensure they comply with the FTC's opinion letter. Ideally, the contract for the lead generation services should specify that the lead generator must meet the requirements set out in the FTC advisory opinion and should provide indemnification for the seller in case the lead generator fails to comply.
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Additional article commentary may be found at
http://www.data-partners.com/newsletters/marketingmentor

Scott Martin is the COO and house legal counsel for Data Partners Inc, a leading provider of direct marketing data solutions. The full text of the FTC Advisory Opinion discussed in this article may be found at http://www.ftc.gov/bcp/telemarketing/HudsonCook AdvisoryOp.pdf

*Footnote: It is important to note that Staff Advisory Opinions are non-binding authority, meaning no court or FTC commissioner is bound by the opinions expressed by the staff. Also, the opinions are limited to the specific facts set out in the opinion. But, the opinions are generally a helpful and reliable indication of what the FTC would likely do in a given situation.

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