UNITED STATES OF
Non-Mergers II Division
September 9, 1997
Robert L. Sherman, Esquire
Dear Mr. Sherman:
This letter responds to your request on behalf of the Direct Marketing Association (DMA) for an advisory opinion regarding its proposal to require that each DMA member (1) participate in DMA's Mail Preference Service and Telephone Preference Service and honor consumers' requests to refrain from future contacts, (2) disclose to consumers whether and how it disseminates information on its customers, and (3) upon the customer's request, refrain from transferring information about that customer to others. On the basis of information you provided, Commission staff would not recommend a challenge to DMA's proposed actions.
DMA and the Proposed Requirements
DMA is a trade association composed of 3200 firms, most of which use direct mail or telemarketing to sell their products. DMA states that its members represent only a fraction of all firms that engage in direct marketing, but that they may account for a "major percentage of direct mail and direct marketing in the United States." Letter from Robert Sherman to the Federal Trade Commission, on behalf of DMA, at 7 (July 28, 1997)("DMA Letter"). Although DMA has members from a variety of industries, many members compete with one another.
As DMA points out, the purpose of direct mail and telemarketing is to target particular persons who "share certain common and relevant interests." DMA Letter at 5. A mailing list is a "manifestation of an attempt to correlate potential receptivity and activity." DMA Letter at 6.
As a service to its members and consumers, DMA offers a Mail Preference Service (MPS) and Telephone Preference Service (TPS). The MPS allows consumers who do not wish to receive direct mail advertising to place their names on a list. DMA members and other direct mail advertisers may use the MPS list, which has 3.3 million names, to remove those consumers' names from their mailing lists. DMA Letter at 9. Similarly, the TPS allows consumers who do not wish to receive telemarketing calls to place their names on a list. DMA members and other telemarketers may use the TPS list, which has 600,000 names, to remove those consumers' names from their calling lists. DMA Letter at 10. Users of MPS and TPS are generally national, as opposed to local, advertisers. DMA Letter at 9.
DMA's proposal in essence would require member firms not to engage in mail or telephone solicitation of consumers on the MPS and TPS lists, respectively. In addition, DMA proposes to require each member to notify consumers of its information practices (for example, that the member sometimes sells its customer list to other firms) and to allow consumers to prevent the sale or other disclosure of their name, address, or other information. DMA Letter at 11.
DMA notes that its proposal is generally consistent with relevant federal statutes. The Telephone Consumer Protection Act of 1991 (TCPA) and the Telemarketing and Consumer Fraud and Abuse Prevention Act (TCFAPA), and the FTC's Telemarketing Sales Rule implementing the TCFAPA, require telemarketers to allow consumers put their names on "do not call" lists. 47 U.S.C. § 277 (1991); 15 U.S.C. § 6101-08 (1995); 16 C.F.R. Part 310 § (1995). This requirement is similar to the requirements DMA proposes to impose for both direct mail and telephone solicitations. Moreover, the Cable Communications Policy Act of 1984 and the Video Privacy Protection Act of 1988 evince a public policy of restricting use of consumer information for marketing efforts. DMA Letter at 14-15.
Analysis of the Proposed Requirements
DMA's proposal would impose three requirements on its members: (1) to refrain from sending direct mail or engaging in telemarketing to consumers who request such treatment, either by listing themselves on MPS or TPS or by directly asking the marketer for such treatment,(2) to disclose their information practices, including the opportunity to prevent future solicitations and the sale or disclosure of personal information, to their customers, and (3) to refrain from selling or otherwise transferring information about customers who request such treatment.
The antitrust laws do not forbid legitimate self-regulation that benefits consumers. As the Commission has stated, "Such self-regulatory activity serves legitimate purposes, and in most cases can be expected to benefit, rather than to injure, competition and consumer welfare." American Academy of Ophthalmology, 101 F.T.C. 1018 (1983); see also American Medical Association, 94 F.T.C. 701, 1029 (1979), aff'd as modified, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided Court, 455 U.S. 676 (1982) ("AMA").
Agreements among competitors to restrict truthful, nondeceptive advertising and solicitation, however, have the potential to restrict competition and harm consumers. See, e.g., AMA, 94 F.T.C. at 701 (1979); California Dental Association, Docket 9259, slip opinion at 13-14 (March 25, 1996)("CDA"). Such agreements may harm consumers by raising the cost of finding the combination of price, service, and quality that best fits their needs and by reducing the incentive for firms to compete (by preventing them from informing consumers of their prices, services, or quality). AMA, 94 F.T.C. at 1005.
Two of DMA's proposed requirements are agreements that theoretically could restrain solicitation either by directly preventing or unduly burdening it. The first, the requirement that DMA members not engage in direct mail or telemarketing solicitation of consumers who request such treatment (through MPS, TPS or a direct request to the DMA member), is a direct restriction on solicitation. This requirement, however, would restrict solicitation only of consumers who have affirmatively communicated that they do not want the information that direct marketers would otherwise seek to provide. It is noteworthy that, in contrast to restraints in which competitors determine what information consumers are to receive, the DMA requirement merely effectuates the consumer's determination not to receive information. In addition, because the consumer has expended resources to avoid receiving the information, it is unlikely that he or she would in fact respond favorably to such solicitations. These factors distinguish this situation from one where competitors attempt to justify restrictions on promotional activity on the basis of the competitors' conclusion that consumers do not "want" or "need" the restricted information. In sum, this requirement appears unlikely to restrict competition significantly.
DMA's second proposed requirement -- that its members disclose to consumers their option to prevent members from soliciting the consumer again or transferring to others their personal information -- could theoretically restrain competition only if the disclosure requirement was so burdensome that it discouraged direct marketing. As the Supreme Court has warned, "[r]equiring too much information in advertisements can have the paradoxical effect of stifling the information that consumers receive." Morales v. Trans World Airlines, Inc., 504 U.S. 374, 388 (1992). The Commission has been most concerned about this potential where the required disclosure is excessive compared to the underlying promotional message, e.g, a requirement to list all fees when a provider is offering an across-the-board discount in an advertisement. See CDA, slip opinion at 18. Members, however, apparently can satisfy DMA's requirement with a brief disclosure that need not be excessive, given that direct marketing activities are not characterized by the same time or space limitations as, for example, broadcast or certain print advertising. Accordingly, DMA's proposal to require members to disclose their information practices does not pose a significant risk of suppressing members' promotional efforts.
DMA's third proposed requirement -- that members honor requests that they refrain from transferring information about customers to other marketers -- arguably could restrict competition in the sale of marketing information. Cf. National Collegiate Athletic Ass'n v. Board of Regents, 468 U.S. 85 (1984) (restriction on selling of television rights to college football games). It appears, however, that this restriction would be unlikely to restrain competition. DMA proposes to restrict the sale of marketing information only regarding consumers who have affirmatively requested such restraint. As noted above, these consumers are unlikely to be receptive to direct marketing solicitations, so that information identifying them is not likely to be competitively significant.
Several other factors suggest that DMA's proposed restraints are unlikely to harm competition. First, they are narrowly tailored to achieve their purposes. For example, they affect only direct mail and telephone solicitation. Second, as discussed above, the TCFAPA and the FTC Telemarketing Sales Rule require telemarketers to honor consumers' requests that they not be solicited. These provisions effectively bar telemarketers from competing to contact consumers who do not wish to receive telemarketing calls, making it unlikely that DMA's proposal will limit competition among telemarketers. Finally, the proposed restraints may make consumers more likely to purchase from DMA members without fear that they will, as a consequence, be deluged by solicitations or have their privacy compromised. For these reasons, the restrictions, far from harming competition in direct marketing, may well promote it.
For the reasons discussed above, Commission staff has no present intention to recommend a challenge to DMA's proposed conduct. This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission's Rules of Practice. Under Commission Rule 1.3(c), 16 C.F.R. § 1.3(c), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved and, with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed program results in substantial anticompetitive effects, if the program is used for improper purposes, if facts change significantly, or if it would be in the public interest to do so.
Michael D. McNeely