Has the FTC Missed the Point, or is it Subtly Seeking to Expand Liability?

The Federal Trade Commission recently announced that it filed comments in a Federal Communications Commission declaratory ruling proceeding aimed at determining the scope of TCPA liability for companies when third-party vendors make unlawful telemarketing calls.  The FTC urges the FCC to rule that when a company that provides goods or services allows a third-party to offer them, calls placed by that third party qualify as calls made on behalf of, and initiated by, the company that provides the goods or services, even though that company did not place the call.  But the FTC’s comments are unclear how far it seeks to have the FCC go in this regard, and that lack of clarity serves to obscure whether the FTC has avoided the core question, or is really seeking to impose substantially broader telemarketing liability.

Under both the FCC’s and FTC’s telemarketing rules (which are largely parallel) when a company provides, or is a “seller” of, goods and/or services, and places calls to induce the purchase of those goods or services, it must adhere to the rules’ requirements and prohibitions, or it is liable for its failure to do so.  It has long been settled under the rules that, if a seller hires an outside party to place those calls on its behalf, failure to comply with the rules can result in liability both for the telemarketer that commits the violations, as well as the seller.  That is why companies that engage outside telemarketers should oversee the telemarketer’s efforts to ensure compliance with the rules at all times.

The FTC’s settlement several years ago with DirecTV for telemarketing violations committed by its outside vendors illustrates this need. As we explained at the time:

The overarching claim against DirecTV was that it provided “substantial assistance or support” to outside telemarketers engaged in [telemarketing rule] violations as to which DirecTV had knowledge and/or consciously avoided discovering. The FTC alleged the violations involved, and that DirecTV’s role exceeded, “more than a mere casual or incidental dealing with a … telemarketer that is unrelated to” violations. In this regard, the complaint claimed DirecTV’s interactions with the telemarketers included one or more of the following: providing a customer list, offering or providing hourly wage and/or commission payments for marketing services, allowing telemarketing of DirecTV goods or services and entering contracts with and/or collecting money from consumers contacted by the telemarketers.

In this context, DirecTV was required to make commitments that suggest what the FTC believes are the duties of sellers that use outside telemarketers. For example, it requires reasonable due diligence investigation, before engaging any telemarketer, to ensure the person/entity has established and enforces effective compliance policies and procedures, that such engagement of telemarketers be evidenced by written contracts, and that they include a duty of compliance as well as the termination if the seller knows or should know calls are made without express, written authorization from the seller and/or in violation of telemarketing rules.

But it strikes me that in seeking comments here, as a result of a primary jurisdiction referral from the Sixth Circuit regarding the scope of TCPA liability, the FCC is getting at something different.  As noted, we already know the answer to what happens when a seller engages an outside telemarketer to place calls on its behalf and the latter commits rules violations — both entities are liable.  And it’s already pretty clear from the DirecTV settlement what happens when a seller provides “substantial assistance and support” to a vendor who offers the seller’s goods or services via telemarketing that fails to comply with the rules.

The FCC proceeding seems, based partly on the nature of the litigations giving rise to it and partly on what is already established, to be examining a more attenuated relationship between a seller and third-party vendors of its services.  In such cases, if the seller does not expressly authorize the vendor to telemarket the seller’s goods/services, and in fact does not exert the kind of authority or control (or provide sufficient assistance and support) to restrict, direct, or even know about the vendor’s telemarketing, what then?  In my mind, that is the question the FCC’s current proceeding asks, in seeking to determine what it means for telemarketing calls to be made “on behalf of” a provider of goods/service sufficient for TCPA liability to attach.

The FTC’s comment seems not to appreciate that wrinkle.  It is possible the FTC missed the point, though that seems unlikely given its recital that it is a party to one of the enforcement actions giving rise to the FCC proceeding.  Or maybe it purposefully avoided the question, choosing instead to use the FCC proceeding as a vehicle for reinforcing the principles in FTC enforcement actions like the DirecTV case.  Or, it’s possible that, without expressly saying so, the FTC is seeking expansion of the principles established in DirecTV’s and similar cases, so that they reach not only sellers who engage telemarketers, but those who use outside vendors that, without any assistance or support, or other express direction from the seller, telemarket the seller’s goods/services.

The latter outcome could be of great significance to companies that sell goods/services through third-party vendors without exercising extensive control over the vendors’ marketing practices.  The ultimate issue, in my view, is what degree of control a company must exercise over its third-party vendors for the latter’s telemarketing liability to flow to the former. How the FCC views the FTC’s filing, and how it interprets how broadly the placement of telemarketing calls “on behalf of” a seller should be construed, bear watching.