California's Attempt to Can Spam May Cost Legitimate Advertisers Millions
By Alan N. Sutin, Greenberg Traurig, New
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On September 24, 2003, California Governor Gray Davis signed a bill that
threatens to seriously disrupt the national online marketing programs of
legitimate companies in every industry. Scheduled to take effect on January
1, 2004, the new law bans most commercial e-mail sent to or from Californians
without explicit permission from the recipient. It authorizes any individual,
Internet service provider or the California Attorney General to sue those
who distribute unsolicited e-mail (commonly referred to as "spam") for "liquidated
damages" in the amount of $1,000 per e-mail, up to $1 million per e-mail
campaign. For the reasons discussed below, the new California anti-spam
law threatens to expose legitimate marketers of products and services to
significant financial liabilities but is unlikely to stop the companies
that are actually generating the most offensive spam.
What The New California Anti-Spam Law Says
|"The new California anti-spam
law threatens to expose legitimate marketers of products and services
to significant financial liabilities."
The new law, authored by State Senator Kevin Murray (D-Los Angeles),
prohibits a person or entity not located in California from initiating or
advertising in unsolicited commercial e-mail advertisements sent to a California
e-mail address. It contains a similar provision that prohibits individuals
or entities located in California from sending unsolicited commercial e-mail
to any personal e-mail address. The law also forbids a person or entity
from collecting e-mail addresses or registering multiple e-mail addresses
for the purpose of initiating or advertising in an unsolicited commercial
e-mail advertisement from California or to a California e-mail address.
The law further prohibits a person or entity from using a commercial e-mail
advertisement containing certain falsified, misrepresented, obscured, or
Significantly, the law authorizes the recipient of a commercial e-mail
advertisement transmitted in violation of these prohibitions, the electronic
mail service provider, or the State Attorney General to bring a legal action
to recover actual damages, and would authorize recovery of liquidated damages
of $1,000 per transmitted message up to $1,000,000 per "incident" (as defined
in the law), although a court could reduce those amounts for certain specified
reasons. Under the new law, the prevailing party in any such lawsuit also
could be entitled to an award of that partyís reasonable attorneyís fees
The new California law has limited exceptions allowing companies to continue
sending e-mails to customers with whom they have a pre-existing business
relationship. Thus, e-mails could still be sent to California customers
who have previously purchased from a company, or who have signed up to receive
weekly updates or advertisements via e-mail, as long as those customers
can revoke their prior consent by "opting out" of receiving further e-mails.
Political e-mail also may continue.
How The New Law Differs From Prior Anti-Spam Statutes
Californiaís new law differs from previous attempts to regulate unsolicited
commercial e-mail in several ways. For example, prior anti-spam bills, which
have proven to be largely ineffective, generally required only that e-mail
marketers have an "opt-out" mechanism by which recipients could avoid receiving
further e-mails from the sender. The new California law imposes an "opt-in"
requirement for commercial e-mail messages that would permit companies to
send messages only to consumers who have granted express consent to receive
such e-mail. Moreover, the consent granted cannot merely be a general one
to receive e-mails of interest. Commercial e-mails into or out of California
will be illegal unless the consumers receiving them consent expressly to
receive offers from the seller of the product or service being offered.
Another key departure from prior attempts to regulate unsolicited commercial
e-mail is that the new California statute targets not just the individuals
or firms who operate spam services, but also the makers of products advertised
in the unsolicited e-mails. A key provision in the California law authorizes
individuals and Internet Service Providers to pursue advertisers directly.
Other state anti-spam laws prohibit spam but leave enforcement in the hands
of the state attorney general. The California legislation enables private
individuals to bring their own legal actions, which will undoubtedly lead
to a rash of lawsuits against the defendants with the deepest pockets. Unfortunately,
the deep-pocket defendants will not be the fly-by-night operators who generate
the vast majority of what consumers regard as the most offensive spam. The
deep pockets belong to the nationís largest consumer product companies,
who view e-mail marketing as one critical component of their overall marketing
Will The New California Anti-Spam Law Work?
The author of Californiaís new anti-spam law, Senator Murray, boasts
that "[t]here are no loopholes, no way of getting around it," and that he
is "confident that this is going to stop the billions that we are losing
The "billions" that Senator Murray refers is a figure derived from a report
issued by Ferris Research Inc., a San Francisco Consulting group, that estimates
that spam will cost United States organizations more than $10 billion this
year, including lost productivity and the additional equipment, software,
and manpower needed to combat the problem.2
According to the report, California, which comprises 12 percent of the nationís
population, suffers an estimated $1.2 billion of that loss.
The hopes of the California legislature that the new law will solve the
Californiaís spam problem may be short-lived. The legislation is vulnerable
to attack under the First Amendment, as well as under Constitutional prohibitions
against state laws that interfere with interstate commerce. John Marshall
Law School Professor David E. Sorkin predicts that the law will survive
First Amendment scrutiny, as courts have held that commercial speech is
less protected than private speech, but believes it could be struck down
as an unconstitutional interference with interstate commerce.3
Even if the legislation withstands constitutional scrutiny, there is
uncertainty concerning the legislationís ability to dramatically reduce
spam. History has shown that the regulation of Internet technologies is
extremely difficult. The mass e-mailers who generate most of the spam that
users consider offensive often cloak their identities in mass mailings by
using such tricks as false return addresses and offshore computer servers,
and stronger laws may simply drive spammers offshore to countries where
they can escape prosecution but still deluge Internet users with e-mail.
If the law is upheld, many legitimate companies offering valuable products
and services likely will reduce e-mail marketing campaigns. However, purveyors
of pornography, questionable dietary or performance supplements and dubious
"get-rich-quick" schemes undoubtedly will continue to clog e-mail boxes
through the use of off-shore servers and forged return addresses.
It is also not clear whether the California law would remain effective
if federal legislation also is passed. Several bills under discussion in
Congress would pre-empt state law, but it seems unlikely that a federal
spam bill will be passed this year. The "Can-Spam Act" sponsored by Sen.
Ron Wyden, Oregon Democrat, was approved by the Senate Commerce, Science,
and Transportation Committee in June, but has stalled owing to a lack of
broad support. Similarly, Sen. Charles E. Schumer (D-NY), sponsored the
"Spam Act" calling for a "Do Not Spam" registry similar to the Federal Trade
Commissionís "Do Not Call" list. That bill stalled in the Senate after FTC
Chairman Timothy Muris called it unenforceable.
What Should You Do If You Engage In Online Advertising?
For many of our clients, online advertising is an important component
of their national advertising campaigns. E-mail marketing campaigns sometimes
are sent to customer e-mail lists collected and maintained by the company
itself. In other cases, companies rent or purchase e-mail lists collected
by third parties. Given the significant penalties imposed under the new
California statute and the dramatically increased likelihood of private
lawsuits, companies that market product and services through commercial
e-mail in the United States should immediately review their policies and
procedures regarding how data is collected and permission is received. At
a minimum, commercially reasonable efforts must be made to either obtain
affirmative permission from new clients or exclude California e-mail addresses
from mailings. If e-mail lists are obtained from third parties, an advertiserís
contracts with such third parties contain (a) appropriate representations
and warranties that the owners of the e-mail addresses have granted all
necessary permissions and indemnifications, and (b) an indemnification against
any and all liabilities that may arise from a breach of those representations
3 Saul Hansell,
California Is Set to Ban Spam, The New York Times, September 24,
© 2003 Greenberg Traurig
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