Commercial Email Sent Through Use of Multiple Domain Names Not Unlawful Under California Statute

Kleffman v. Vonage Holdings Corp., No. S169195 (Cal. Sup. Ct. June 21, 2010)

Facts:

Plaintiff filed a class action lawsuit alleging that defendant Vonage Holdings Corp. sent him 11 unsolicited email advertisements promoting its broadband telephone services through use of 11 different domain names.
Plaintiff alleged that some of these domain names were garbled and/or made up of random words.
There is no dispute that the 11 subject domain names are all traceable to a single physical address in Nevada, where Vonage’s marketing agent is located.
According to plaintiff, none of the names indicated that Vonage was the sender of the email.
The complaint further alleged that the use of these various domain names was done in an effort by Vonage to avoid landing in recipient “spam filters.”
Plaintiff claimed that Vonage’s use of “multiple domain names to bypass spam filters,” its “failure” to use a “single domain name” in sending its advertisements, and its “failure to identify Vonage in the domain name from which the . . . advertisements were sent, i.e., through the use of a generic subdomain name such as adfor.vonage.com, constitute[ ] falsified and misrepresented header information prohibited by” the California Business and Professions Code.

California Business and Professions Code Section 17529.5(a)(2):

This pertinent California statute provides, in part, that it is unlawful to send a commercial email advertisement if the advertisement “contains or is accompanied by falsified, misrepresented, or forged header information.”

District Court:

The lower court dismissed the action finding that plaintiff did not actually allege that the content of Vonage’s email advertisement was false, misrepresented or forged.
Further, plaintiff failed to allege anything misleading about any of the subject email messages.
The court pointed out that under the plain language of the statute, which requires that an email message not contain falsified, misrepresented or forged header information, the claim fails.

Issue on Appeal:

On appeal, the court reviewed the scope of the California statute, section 17529.5(a)(2).
The specific issue in contention was whether the email messages contained or were accompanied by “misrepresented . . . header information” within the meaning of the statute.

California Supreme Court:

On appeal, plaintiff argued that the statutory term “misrepresented” should be construed to also mean something that is “likely to deceive.”
Specifically, Vonage’s decision to use 11 different random and nonsensical domain names was deceptive and, therefore, prohibited under the language of the statute.
Plaintiff also asked the court to look at the legislative history of the statute, arguing that the California legislature intended to include something that is “misleading” by using the word “misrepresented” in the statute.
The court declined to interpret the statute in the manner suggested by plaintiff, finding that the legislative history does not support a conclusion that “misrepresented” means “misleading” or “likely to mislead.”
The court held that a single email with an accurate and traceable domain name neither contains, nor is accompanied by, “misrepresented . . . header information” within the meaning of the statute merely because its domain name is “random,” “varied,” “garbled,” and “nonsensical” when viewed in conjunction with domain names used in other emails.

Summary:

While the decision may be somewhat limited by the facts at issue, the court ruled that sending email advertisements through use of various domain names that are otherwise accurate and traceable, are not “misleading” within the meaning of the California Business and Professions Code.
In its decision, the court devoted a lot of attention to the issue of statutory construction and why the word “misrepresented,” as used in the statute, should not be interpreted to mean “likely to mislead.”

Company Successfully Pleads Trade Dress Infringement Claim Involving “Look and Feel” of Website

Conference Archives, Inc. v. Sound Images, Inc., 2010 WL 1626072 (W.D. Pa. Mar. 31, 2010)

Facts:

Plaintiff Conference Archives, Inc. and defendant Sound Images, Inc. record and reproduce conferences and other meetings through a variety of digital media.
Plaintiff created a product called Conference Companion and registered the name as a federal trademark.
The product displays recorded video accessible via an Internet browser.
The companies were involved in a partnership until their relationship dissolved in late 2004.
Defendant subsequently copied a portion of code from Conference Companion in an effort to develop a similar product.
Defendant conceded copying the code, without permission, so that its product/website would have a “consistent” appearance to that of plaintiff.
In effect, defendant chose to “mimic” the “look and feel” of plaintiff’s product.

Matter of First Impression:

The court was presented with the issue of whether the “look and feel” of a website should receive trade dress protection under the Lanham Act.

Website Trade Dress – How Should it be Protected?

Trade dress is a form of trademark protection that refers to the “total image and overall appearance of a product.”
Trade dress refers to the “manner in which the goods or services are presented to prospective purchasers . . . .”
According to the court, “a ‘look and feel’ analysis is suited to protect not only static elements such as ‘photos, colors, borders or frames,’ but also ‘interactive elements and the overall mood, style or impression of the site.’”
Significantly, the court noted that “[t]he hallmark of a protectable ‘look and feel’ trade dress is a graphical user interface that promotes the intuitive use of the website.”

Court Review:

The court first looked at whether or not such a claim is covered under the Copyright Act.
Claims under the Copyright Act and the Lanham Act are mutually exclusive. One cannot receive a remedy under both.
According to the court, the Copyright Act aims to protect original work, while trade dress protection applies to any communication that conveys meaning, even if unoriginal.
The leading case on this issue is Blue Nile, Inc. v. Ice.com, Inc., 478 F. Supp. 2d 1240 (W.D. Wash. 2007), in which the court noted that “the Copyright Office and at least one author have commented that copyright protection may not cover the overall format, or the look and feel, of a website.”
In considering factors set forth in earlier precedent, the court held that the “look and feel” of plaintiff’s website should not receive protection under the Copyright Act. The court turned to whether the plaintiff could state a claim under the Lanham Act.

Lanham Act

The court set forth the purposes of trade dress law:
1. the “look and feel” of a website aims to support and protect a company’s reputation;
2. protecting the “look and feel” of a website prevents imitators from receiving unjust enrichment; and
3. by shifting the incentives to create, protecting the “look and feel” of a website encourages producers to develop high-quality products.
Based on these factors, the court found that the “look and feel” of a website can constitute a trade dress protectable under the Lanham Act.
In order to state a claim under the Lanham Act, one must prove that its trade dress is distinctive (that it indicates the source of the plaintiff’s goods), that it is primarily nonfunctional, and that the trade dress of competing goods is confusingly similar.
The court held that plaintiff successfully stated a claim for trade dress infringement.
Here, the defendant admitted to intentionally copying the “look and feel” of the plaintiff’s website in order to confuse customers into thinking that the defendant’s website was similar to that of plaintiff.
The court noted that defendant sought to copy the “intuitive design” of the Conference Companion software, and thus appropriate the “cognitive absorption” properties of the plaintiff’s trade dress.

Summary:

In certain circumstances, the “look and feel” of a website will be entitled to trade dress protection.

FTC Closes Investigation of Ann Taylor Under the Guides for Endorsement and Testimonial Use in Advertisements

Federal Trade Commission
April 20, 2010

Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”):

In our November, 2009, Newsletter we reported on the release of the revised Guides.
The Guides offer information on how companies may properly use assorted media to promote their products and services.

The Revisions:

Any advertising that implies that a consumer’s experience with a particular product or service is typical, when in fact it is not, will be required to clearly disclose the results that a consumer may typically expect.
Advertisers may no longer simply include a disclaimer such as “results not typical.”
The Guides further add new examples illustrating the “material connections” between advertisers and endorsers that a consumer may not be aware of. The Federal Trade Commission (“FTC”) provides the example of a blogger who receives cash or in-kind payment to review a product as something that would be considered an endorsement. According to the Guides, a blogger who endorses a product or service must disclose the material connections that it has with the seller.
Any paid endorsement is considered deceptive if it sets forth false or misleading claims.
The revisions also address celebrity endorsers. According to the Guides, celebrities have an obligation to disclose their relationships with advertisers when making endorsements outside the context of traditional advertising, such as on talk shows or in social media.
Advertisers and endorsers alike will be liable for false or unsubstantiated claims made in an endorsement.

Ann Taylor Investigation:

According to the FTC, Ann Taylor invited bloggers to preview its Loft Division Summer 2010 Collection on January 26, 2010.
The company offered a “special gift” to bloggers who attended, and promised that those who posted coverage of the event would be entered into a “mystery gift-card drawing” rendering them eligible to win between $50 and $500.
The invitation also required bloggers to submit posts to the company within 24 hours in order to find out the value of their gift card.
The FTC opened an investigation into Ann Taylor’s marketing practices and, in particular, its compliance with the Guides.

FTC Closes the Investigation:

On April 20, 2010, the FTC decided not to take action against Ann Taylor and closed its investigation.
The FTC provided the following reasons:

Summary:

This is the FTC’s first investigation concerning violations of the revised Guides.
It is important to keep in mind that the amount of money in question here was as little as $50.00, leaving one to imagine that no amount is too small to spark an investigation.
As Ann Taylor did, companies that use social media for advertising purposes should consider implementing and enforcing a written policy in line with the tenets of the Guides.

ModernAd Media, LLC Settles with the Florida AG for Alleged CAN-SPAM Violations

Attorney General Bill McCollum
Press Release
May 4, 2010

Investigation:

The CyberFraud section of the Florida Attorney General’s Economic Crimes Division conducted an investigation into the business practices of the Internet-based advertising company, ModernAd Media, LLC.
The investigation revealed that consumers were solicited via email, Internet “pop-up” windows, and paid advertisements linked to Google and other search engines.
According to the Attorney General’s Office, some of the advertisements indicated that consumers were entitled to receive “free” merchandise.
The investigators sought to determine whether the promotional merchandise was in fact “free,” and whether the terms and conditions for receiving those items were presented in such a way so as not to mislead consumers.

Allegations:

The Attorney General’s Office alleged that ModernAd Media violated the Federal CAN-SPAM Act, prohibiting deceptive and misleading header information in unsolicited commercial email messages.

Settlement:

ModernAd Media has agreed to pay $2.9 million to the Florida Attorney General’s Office which will be used to, among other things, reimburse the State’s fees and costs incurred in connection with conducting the investigation.
The company has also promised to disclose and prominently display all necessary information on Internet-based advertisements so that consumers may make informed decisions before agreeing to purchase or participate in trial offers.

Summary:

Internet-based advertising companies should continue to pay close attention to the assorted settlements that we have reported on in this and recent Newsletters.
Attorneys General in various states seem to have made it a priority to investigate the practices of Internet advertising companies across the country.

Advertising Industry Releases Standards for Enhanced Notice in Online Ads

Interactive Advertising Bureau
Press Release
April 14, 2010

Set of Standards for Enhancing Notice in Online Ads:

The Interactive Advertising Bureau (“IAB”), together with the Network Advertising Initiative (“NAI”), recently released the Control Links for Education and Advertising Responsibly (“CLEAR”) Ad Notice Technical Specifications.
The standards are intended for adoption by third-party media companies. There are separate requirements concerning first-party notice on a publisher’s own website.

Clickable Icon For More Information:

The standards will enable advertisers and ad networks to offer a “clickable” icon in or near online ads that will direct users to further information about online behavioral advertising and choices available related to the receipt/display of such ads. This icon will consist of a lower case stylized “i” surrounded by a circle that should appear on every web page that contains a participating advertisement.
This approach was described in the Self-Regulatory Principles for Online Behavioral Advertising, released in July, 2009, by a group of associations.
It is expected that third-party ad servers would be able to integrate the icon so that consumers will have access to more information when confronted with ads that are presented based on their interests and online “behavior.”

How the Icon works:

The CLEAR Specifications detail how third-party media companies can provide enhanced notice to consumers through an industry standard set of metadata tags that are delivered along with behaviorally-targeted advertisements.
The metadata tags include information on which organizations served the ad, where to find their advertising policies and how to opt-out of such targeting in the future.

Purpose of CLEAR Ad Notice Technical Specifications:

To comply with the third-party requirements established in July, 2009, as part of the Self-Regulatory Principles for Online Behavioral Advertising mentioned above.
To provide enough flexibility for future growth as the online advertising industry continues to evolve and mature.
To be open enough so that entities such as publishers, browser developers, tool developers and others can easily use the information and find new methods to communicate this information.

Summary:

With these specifications, organizations in the advertising and marketing industry are being afforded the opportunity to “self-regulate” consumer notice via the clickable “icon” described.
Federal Trade Commission officials have indicated that unless companies effectively self-regulate these notice practices, regulations or legislation will need to be issued in the near future.

Classmates.com Agrees to Settle Fraudulent Marketing Charges

In re Classmates.com Consol. Litig., No. 2:09-cv-00045-RAJ (W.D. Wa. Mar. 12, 2010)

Facts:

Defendant Classmates.com (hereinafter “Classmates”), operates an online database that contains the records of millions of people organized by high school graduating class, college graduating class, and other similar categories.
A user may access his/her class records by registering for a Classmates membership, either paid or non-paid.
The current suit consists of a consolidated class action challenging various Classmates practices, with claims brought under Washington’s Consumer Protection Act (“CPA”) and Commercial Electronic Mail Act (“CEMA”).
The complaint alleges that Classmates employed deceptive practices to induce users to pay for Classmates memberships.
In one such practice, Classmates allegedly sent commercial email to unpaid members advising them that someone with whom they went to high school or college was attempting to contact them or had visited their profile.
The subject email message indicated that the member could communicate with that person by upgrading to a paid membership. The complaint alleged that the purported attempt to connect with the members did not actually occur.

Proposed Settlement:

Classmates has agreed to pay nearly $11 million to settle the fraudulent marketing claims.
Under the proposed settlement, Classmates would be required to issue a credit to “main class” members and a credit or cash payment to “subclass” members.
The settlement also includes a three (3) year injunction prohibiting Classmates from continuing with the challenged practices.
The injunction further requires Classmates to include disclosures on its website about the “guestbook” feature on which many of its allegedly deceptive practices are focused, and will also include disclosures to enable users to better protect their personal information.
In turn, Classmates will receive a broad release of all claims from class members.
Notice to class members will be sent electronically via the most recent email address provided to Classmates (and will also be printed in a Wall Street Journal advertisement).
A hearing is set for October 27, 2010, to determine whether the settlement should be made final.

Court Finds “Hot News” Misappropriation, Enjoins Redistribution

Barclays Capital Inc. v. Theflyonthewall.com, 2010 WL 1005160 (S.D.N.Y. Mar. 18, 2010)

Facts:

Plaintiff firms, Barclays Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and Morgan Stanley & Co., Inc., conduct and ultimately provide equity research recommendations to their clients.
It is intended that plaintiffs’ clients will trade on these recommendations.
Defendant Theflyonthewall.com, an Internet subscription news service, aggregates and publishes research analysts’ stock recommendations along with other financial news items.
Plaintiffs contend that their recommendations are “hot news” and that defendant’s “regular, systematic, and timely taking and redistribution” of this information constitutes misappropriation under New York’s common law of unfair competition.
After sending cease-and-desist letters to defendant without success, plaintiffs sued for misappropriation and copyright infringement.
Defendant does not dispute that it engaged in copyright infringement.
It does, however, contest that it is liable for hot news misappropriation.

Court Review:

The court first noted that hot news is protectable as “quasi-property,” citing the U.S. Supreme Court decision in International News Service v. Associated Press, 248 U.S. 215 (1918).
According to that decision, “the misappropriation doctrine was developed to protect costly efforts to gather commercially valuable, time-sensitive information that would otherwise be unprotected by law.”
The court also applied the five-part test identified in the Second Circuit decision, National Basketball Ass’n v. Motorola, Inc.,105 F.3d 841 (1997), to determine whether plaintiffs’ hot news cause of action would survive preemption under the Copyright Act.
The five (5) elements are as follows:

Court Decision:

In applying the elements established in the NBA decision, the court easily found that the first two (2) prongs were satisfied: plaintiffs clearly incur a great cost in generating the information and the information is highly time-sensitive.
Regarding the third element, the court further found that defendant’s core business is its free-riding off of the efforts of plaintiffs and other investment firms.
In turn, the court found that plaintiffs have shown that they are in direct competition with defendant in disseminating recommendations to investors for their use in making investment decisions.
Finally, the court noted that plaintiffs put forth sufficient evidence that defendant’s conduct would, in effect, reduce another’s incentive to invest the resources necessary to produce equity research reports and, therefore, the continued viability of plaintiffs’ research business is and “would be substantially threatened.”
In so ruling, the court issued an injunction prohibiting the dissemination of plaintiffs’ recommendations until one half-hour after the opening of the New York Stock Exchange or 10:00 a.m., whichever is later.

Summary:

As financial and other news is continuously made available via many up-to-the-minute sources, claims for “Hot News” misappropriation may arise more frequently.
In those cases, it seems that the elements set forth in the NBA decision will be applied and analyzed for purposes of determining whether a legitimate “Hot News” misappropriation cause of action exists.