FTC Says Scoot, Rascal! Rascal Scooters Penalized $100,000 for Calling Consumers on the Do Not Call Registry

Posted on April 28, 2011 by Kevin Khurana

On April 21, 2011, the Federal Trade Commission (FTC) and Electronic Mobility Corporation (d/b/a Rascal Scooters) entered into a settlement agreement pursuant to which Rascal Scooters agreed to pay $100,000 as a civil penalty to settle a complaint filed by the FTC alleging that Rascal Scooters violated the FTC Act (15 U.S.C. § 44) and the FTC’s Telemarketing Sales Rule (16 C.F.R. 310) (TSR). At the center of the FTC’s complaint was the allegation that Rascal Scooters and its owner, Michael Flowers, made more than three million unsolicited sales calls since 2003 to consumers on the Do Not Call Registry who submitted their contact information to Rascal Scooters through its “Win a Free Rascal” sweepstakes.

As background, the Telemarketing Sales Rule allows a company to call a consumer on the Do Not Call Registry if the company has an “established business relationship” with the consumer and the consumer has not otherwise opted out of receiving calls from the company. What Rascal Scooters failed to consider, however, was that an “established business relationship” does not arise from the submission of a sweepstakes entry form. Rather, an “established business relationship” only exists if a consumer has purchased a company’s goods or services within the 18 month period immediately preceding the call or if a consumer inquires or submits an application regarding a company product or service within the 3 month period immediately preceding the date of the call. 

In addition to the $100,000 penalty, Rascal Scooters is only allowed to call consumers if it has their consent in writing or if there is an actual “established business relationship” and is subject to ongoing monitoring and reporting requirements to ensure its compliance with the settlement order.

 

It is important to note that the penalty imposed could have been (and can be) much greater than $100,000. Pursuant to the settlement order, Rascal Scooters is subject to a $2 million penalty that is currently suspended due to its inability to pay.   The $2 million will become due immediately if it is revealed that the company misrepresented its inability to pay.

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One Reputable Retailer Takes a $7M Hit On Text Messages

Posted on October 31, 2008 by Kristen J. Mathews

On September 10, 2008, Timberland Company, an outdoor clothing and shoe merchant, along with co-defendant ad agencies GSI Commerce Inc. (“GSI”) and AirIt2Me Inc. (“AirIt2Me”), settled charges brought under the Telephone Consumer Protection Act (“TCPA”) arising from unsolicited text messages advertising Timberland’s holiday sale.  Pursuant to the settlement, Timberland must employ best practices in future marketing, and must pay $7 million into a fund for distribution to the class.  Prior to any future mobile marketing campaign, GSI agreed to circulate to its marketing personnel a copy of the Mobile Marketing Association’s Consumer Best Practices guidelines, and to establish meaningful training and compliance checks in connection with those guidelines. Additionally, the defendants must pay class counsel a maximum amount of $1,750,000.  The settlement has been agreed to by all parties, but is still subject to final approval by the court.
 

The event underlying the action was a mobile marketing campaign.  The plaintiffs alleged that Timberland contracted with AirIt2Me and GSI for the promotion of a holiday sale in 2005.  As a part of the promotion, Timberland, by and through these agents, allegedly sent thousands of unsolicited SMS text messages to potential customers' cell phones.  Two recipients of the text message initiated a class action alleging violation of the TCPA, which prohibits unsolicited voice and text calls to cell phones, using an auto-dialing system, unless the recipient has given prior consent.  The statute also prohibits companies from initiating telephone solicitations to individuals on the national Do-Not-Call list, unless the individual has given prior express consent or has an established business relationship with the company.


Any company engaging in a mobile marketing campaign should utilize a strategy that meets its business objectives, but also takes the appropriate steps to protect itself from potential liability under the applicable laws.  In the case of text messages, a company must obtain an “opt-in” to send messages to a mobile device.  This settlement illustrates the high pay-outs that can result from legal actions.  Violations of the TCPA can result in statutory damages of $500 per violation (i.e., for each individual text message).


When undertaking these types of campaigns, companies must comply with both the TCPA and the Controlling the Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM”), as well as the various state laws that apply to mobile promotional messaging.  All of these laws require companies to obtain express consent from individuals before sending promotional messages to their wireless devices.  In addition to these statutes, both the Mobile Marketing Association and the Wireless Association have best practice guidelines to provide companies with guidance in crafting marketing policies.  Companies should review their mobile marketing policies to ensure they are compliant, and should distribute these policies to all applicable employees and agents.  In addition, when utilizing any third-party agent to facilitate mobile marketing campaigns, a company should require that the agent is complying fully with the applicable laws and regulations.  Any contracts with third-parties should include warranties and indemnification as to these requirements.
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