Court Awards $7,000 in Damages for Claim under California Anti-Spam Law

Balsam v. Trancos, Inc., No. CIV 471797 (Cal. Sup. Ct. March 10, 2010)

Facts:

Plaintiff maintains the website danhatesspam.com.
Defendant owns over 477 different domain names, all privately registered through DomainsByProxy.
Through its “Meridian” division, defendant sent advertisements using email lists provided by Hi-Speed Media/Value Click. The two (2) parties shared any resulting revenue. This arrangement lasted from June 2007 until September 2007.
The subject lawsuit involved eight (8) commercial email messages that defendant allegedly sent to plaintiff via various privately-registered domain names.
Defendant sent the eight (8) email messages through use of eight (8) different domain names.
The email “from line” information of the email messages at issue depicted generic terms, such as “Paid Survey” and “Your Business.”

Allegations:

Plaintiff alleged that all eight (8) email messages violate California’s Business & Professions Code Section 17529 (“State Anti-Spam Statute”).
Specifically, plaintiff asserted that the subject email messages each had “falsified, misrepresented, or forged header information.”
Plaintiff further alleged that “[n]one of the eight emails provided a toll-free number to call to opt-out. Seven of the eight emails did not provide the ability to send an ‘unsubscribe’ email to the advertiser of the product or service advertised in the email.”
Defendant argued that plaintiff’s claims were preempted by the Federal CAN-SPAM Act.

Court Decision:

The court held that plaintiff’s claims under the California statute were not preempted by the CAN-SPAM Act.
The court found that defendant “undertook efforts to impair a recipient’s ability to identify, locate, or respond to it as the initiator of the email, and that it intended to hide itself from identification by recipients as the sender.”
Finally, the court indicated that defendant -- as the referenced sender -- is a nonexistent entity using a nonsensical domain name, reflecting no actual company.
The court awarded plaintiff $1,000 in damages for seven (7) of the email messages.

Summary:

According to the court, this is an issue of first impression in California.
Further, this is the first time that a “spam” recipient successfully brought such an action to trial.
Entities sending unsolicited commercial email should pay close attention to the facts of this case.

Putative Class Files Complaint Against Classmates.com for Misleading Privacy Change

Ferguson v. Classmates Online, Inc., No. 2:10-cv-00365-RAJ (W.D. Wash. March 5, 2010)

The Parties:

The Class:

Thomas Ferguson, Patrick Fahey and potentially 40 million other Classmates.com users similarly situated.

The Defendant:

Classmates Online, Inc. (“Classmates”), a media corporation founded in 1995, provides a service that allows members to reconnect with classmates and friends from the past.

The Complaint:

Plaintiffs allege that although one may join Classmates for “free,” users provide valuable information for this membership, such as their email addresses that Classmates uses for marketing purposes.
Classmates offers a paid “Gold” level membership, which allows members to: 1) send and receive email through the use of Classmates’ private email system; 2) see who has reviewed their Classmates profile; and 3) learn the locations of old friends via a Classmates-created virtual “map.”
The crux of the class action complaint centers around an email message that Classmates sent to its users in January 2010, explaining a change to its Privacy Policy.
This email communication notified users that Classmates was altering its Privacy Policy in a way that would allow Facebook and iPhone users to search Classmates members’ personal information through a special application, while offering an allegedly “misleading” opt-out procedure to prevent this from occurring.
Plaintiffs complain that this “Waiver Email” was deceptive, misleading and improper.
Specifically, plaintiffs allege that most Classmates members are not experts in Internet technology and terminology and may not have realized the impact of the change in privacy terms.
Plaintiffs complain that Classmates had already “pre-checked” the option to permit disclosure of their personal information to Facebook and iPhone users.
Further, plaintiffs allege that the new application will expose the personal information of Classmates members to Apple, Facebook and millions of unknown Apple and Facebook users.
Plaintiffs assert violations of the Electronic Communications Privacy Act, the Washington Consumer Protection Act and assorted common law claims.

Summary:

This is a huge consumer privacy class action, one among many similar actions now pending in the social networking media space.
We will continue to monitor this and other cases as they progress.

Federal Reserve Issues Final Gift Card Rule

Federal Reserve Press Release
March 23, 2010

Purpose:

The final rule amends Regulation E to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act”).
The rule details protections for consumers that purchase or use gift cards.

Effective Date:

The protections described below will apply to all gift cards sold on or after August 22, 2010.

Items Covered:

The final rule applies to gift certificates, store gift cards, and general-use prepaid cards as defined by the Credit CARD Act.
This includes retail gift cards that can be used at a single merchant or affiliated group of merchants and network-branded gift cards.

Not Covered:

Prepaid cards, such as re-loadable prepaid cards that are not advertised or labeled as gift cards or gift certificates, are not covered under the final rule.
Prepaid cards received through a loyalty, award or other promotional program are not covered under the final rule.

Restrictions on Fees:

Dormancy, inactivity and service fees may only be assessed under the following circumstances:

there has been at least one year of card/certificate inactivity;
no more than one fee is charged per month; and
the consumer is given clear and conspicuous disclosures about the fee.

Types of Fees Restricted:

Monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, including re-load fees, ATM fees, and point-of-sale fees are restricted.

Expiration Date Limitations:

The expiration date must be at least five (5) years after the date of issuance or five (5) years after the date when funds were last loaded.
The restrictions apply to the consumer’s funds, not to the certificate or card itself.
Consumers may not be charged a fee to replace an expired certificate or card or for refunding any balance remaining on the subject certificate or card.

Summary:

As of August 22, 2010, issuers of certificates and gift cards must be in compliance with the Federal Reserve’s final rule.
The final rule appears to have struck a compromise between the industry and card users. Many consumer groups were hoping that the Federal Reserve would ban all fees and eliminate expiration dates entirely.

Identity Theft Prevention Firm Settles FTC Fraud Charges for $12 Million

Federal Trade Commission
Press Release
March 9, 2010

Federal Trade Commission (“FTC”) Charges:

The FTC brought charges against Lifelock, an identity theft prevention company, for utilizing false claims to promote its services.
According to the FTC, for a $10 monthly service fee, Lifelock guaranteed that its customers would be protected from ever having their identities stolen.
Although promising complete protection, the FTC further alleged that Lifelock’s “fraud alerts” placed on customers’ credit files only protected against certain forms of identity theft and gave them no protection against the misuse of existing accounts.
In addition, Lifelock allegedly provided no protection against medical identity theft or employment identity theft.
According to the FTC, Lifelock falsely claimed that it would prevent unauthorized changes to customers’ address information, that it constantly monitored activity on customer credit reports, and that it would ensure that customers receive a telephone call from a potential creditor before a new account was opened.
Despite its statements to the contrary, the FTC also alleged that Lifelock’s data was not encrypted, and that sensitive consumer information was shared with third parties.

Settlement:

Lifelock agreed to pay $11 million to the FTC and $1 million to a group of 35 state attorneys general to settle these charges.
The company and its principals are now prohibited from making deceptive claims and will be required to implement more rigorous standards to help protect the personal information that they collect from customers.
Specifically, the settlement bars the company from misrepresenting the “means, methods, procedures, effects, effectiveness, coverage, or scope of any identity theft protection service.”
Under the agreement, Lifelock must also be candid with potential customers concerning the risk of identity theft and the true extent to which the company actually protects customer information.
Lifelock will be required to create a comprehensive data security program and is subject to biennial independent third-party review of its program for twenty (20) years.
The FTC plans to use the $11 million to distribute refunds to consumers.

Summary:

Identity theft is a huge problem in today’s increasingly online world. Sensitive personal information is more vulnerable to theft than most people/consumers realize.
It is clear from this action and resulting settlement, that companies promising more protection than they can, or actually intend to provide, will be targeted by the FTC.

Eighth Circuit Denies Availability of Conspiracy-Based Claim Under Iowa Unsolicited Commercial Email Statute

Kramer v. Bartok, 595 F.3d 825 (8th Cir. 2010)

Facts:

Plaintiff Robert Kramer operated CIS Internet Services (“CIS”), an Internet service provider (“ISP”).
Defendants Henry Perez and Suzanne Bartok owned and operated AMP Dollar Savings (“AMP”), a corporation that also conducted business under the names Mortgageleads.tv and Plastic Profits.
In 2001, Mortgageleads.tv agreed to provide mortgage leads to mortgage broker Cal Capital.
In 2003, Mortgageleads.tv allegedly sent unsolicited bulk email promoting mortgage refinancing services to “cis.net” email addresses.
All but 23 of these email messages were blocked by cis.net’s spam filter.
Kramer’s attorney opened one of the 23 email messages that CIS received, followed the link contained therein to a mortgage refinancing website, and submitted a mortgage application form that included his telephone number.
Following this exchange, an employee of Cal Capital contacted Kramer’s attorney using the telephone number that he had provided on the mortgage application.

Complaint:

Kramer alleged that defendants sent millions of unsolicited commercial email messages to CIS in violation of Iowa’s unsolicited commercial email statute.

District Court:

The court held that both Perez and Bartok violated the Iowa statute, concluding that more than 23.6 million unsolicited commercial email messages sent to CIS “originated with” Perez and Bartok.
The court held the defendants jointly and severally liable to Kramer for over $236 million in statutory damages.
The court rejected Bartok’s argument that, although she may not have hit the “send” button to deliver the unsolicited commercial email she was, nonetheless, civilly responsible for conspiring with Perez to send the email messages and for aiding and abetting his “spamming operation.”
Only Bartok appealed, asserting that the district court erred when it held her civilly liable to Kramer for violating the Iowa statute, despite also finding that she was not “the ‘person’ hitting the ‘send’ button to create the spam email.”

Iowa Statute - Section 714E.1(2):

It is unlawful “for a person to use an interactive computer service to initiate the sending of bulk electronic mail that the sender knows, or has reason to know” violates the provisions of section 714E.I(2)(a)-(e).

Eighth Circuit Decision:

The court of appeals reversed, holding that Bartok cannot be held directly liable for her conduct under the statute.
According to the court, the district court’s findings of fact do not support a conclusion that Bartok used an “interactive computer service” to initiate the sending of unsolicited commercial email.
The court consulted The American Heritage Dictionary for the definitions of “initiate” and “send.”
Reading those definitions in conjunction with the language of the statute, the court found that liability only attaches to individuals that use an interactive computer service to transmit bulk email by hitting the “send” button.
The court also found that Bartok cannot be held liable under the statute for civil conspiracy and/or aiding and abetting, because the statutory language creates no such liability.

Summary:

According to the Eighth Circuit, unless you personally hit the “send” button that results in the transmission of unsolicited commercial email, it is unlikely that you will be found liable for either violating the Iowa State statute or conspiring to do so.

Google Entitled to CDA Immunity Despite Suggesting Keywords for Sponsored Ads

Jurin v. Google, Inc., No. 2:09-cv-03065 (E.D. Cal. March 1, 2010)

Facts:

Plaintiff’s company markets and sells its trademarked “Styrotrim” building material.
Plaintiff brought this action against defendant Google, Inc. for its alleged unauthorized use of the trademarked “Styrotrim” name as a “keyword.”
Google’s “AdWords” program found “Styrotrim” to be a commonly searched term and suggested it as a search keyword to bidders using its AdWords Keyword Suggestion tool.
Plaintiff’s competitors were able to bid on the keyword “Styrotrim,” thereby allowing advertisements for competitor products to appear as “Sponsored Links” on the “Styrotrim” search results page.

Allegations:

Plaintiff brought various state and federal claims, including a violation of the Lanham Act, challenging the legality of certain aspects of Google’s advertising practices.
Plaintiff claimed that Google’s publishing of “Sponsored Links,” in response to an online search for the trademark “Styrotrim,” violates the false designation of origin provisions contained within the Lanham Act.
In addition, plaintiff claimed that Google’s AdWords program allows for false advertising, also in violation of the Lanham Act.
Google moved to dismiss the various allegations asserting, among other things, immunity under the Communications Decency Act (“CDA”).

Court Decision:

False Designation of Origin Claim:

The court found that a false designation of origin claim requires a showing that the defendant falsely represented that it was the “source” of the subject goods.
The court held that plaintiff failed to show that Google directly represented that it was the producer of the Styrotrim product.
It further dismissed plaintiff’s argument that Google in some way helped “facilitate” confusion of the products with others as “highly attenuated.”

False Advertising:

To successfully plead a false advertising claim, one must show that the subject parties are direct competitors.
Here, the court noted that plaintiff and defendant are not direct competitors.
While Google may provide advertising support for others in the industry, it does not directly compete with plaintiff in the building materials market.
Thus, the court dismissed the false advertising claim for failure to demonstrate direct competition.

Communications Decency Act:

The CDA provides complete immunity to any “provider or user of an interactive computer service” premised on “information provided by another content provider.”
The court reviewed established precedent and found that an interactive computer service qualifies for immunity provided that it does not also function as an “information content provider” (see Carafano v. Metrosplash.com, Inc., 339 F.3d 1119, 1123 (9th Cir. 2003) (“So long as a third party willingly provides the essential published content, the interactive service provider receives full immunity regardless of the editing or selection process.”).
Plaintiff claimed that through its Keyword Suggestion tool, Google does in fact participate in the content of advertisements, thereby rendering it an “information content provider.”
The court dismissed this argument, noting that Google does not provide the content of the “Sponsored Link” advertisements, but rather provides a forum for publication and the ability to view same.
In reaching its decision, the court noted that suggesting keywords helps competitors refine their content, and is “tantamount to the editorial process protected by the CDA.”

Summary:

The court granted Google immunity, noting that the purpose of the CDA is “to encourage open, robust, and creative use of the internet.”
By merely providing suggested search terms and charging for it, Google is not considered an information content provider.