This past June, we reported L.L. Bean filed suit against Nordstrom, J.C. Penney, Atkins and Gevalia alleging copyright and trademark infringement in connection with pop-up advertising. Bean has now settled with Gevalia and Atkins, who have agreed to damage payments (i.e., for trademark infringement), as well as agreeing not to authorize pop-up advertisements of their products on Bean’s website. Spyware has been the subject of significant controversy, and anti-spyware legislation has passed in Utah and is pending in Congress and in California, although the Utah statute is being challenged by spyware maker WhenU. It is likely lawsuits such as Bean’s will continue to be filed based on theories that not only are consumers annoyed by pop-up ads, but that they become confused by the advertisements as well.
Court Sanctions UBS for Destroying E-Mails
On July 20, the U.S. District Court for the Southern District of New York imposed sanctions against UBS Warburg for destroying relevant e-mail messages during the course of litigation (Zubulake v. UBS Warburg LLC, et al., 2004 U.S. Dist. LEXIS (S.D.N.Y, July 20, 2004)). The Court ordered UBS to pay expenses and attorney fees incurred by the plaintiff, granted plaintiff’s request for further discovery, and agreed to instruct the jury that a negative inference may be drawn against UBS as a result of the missing evidence. The case provides important guidance for counsel on electronic discovery issues and record management, and the Court notes counsel is expected to take some affirmative steps: (1) “identify sources of discoverable information”; (2) “put in place a litigation hold and make that known to all relevant employees by communicating with them directly” and not only repeat these instructions “regularly” but also “monitor compliance”; (3) “call for employees to produce copies of relevant electronic evidence”; and (4) “safeguarding any archival media” the client must preserve. Given the notoriety of the case, these practices will likely become a de facto standard in evaluating electronic discovery issues and requests for sanctions. Got litigators? Call Rimon—we not only have knowledgeable litigators, but we also have an entire team of professionals skilled in data management, record retention, and compliance in and out of litigation. Try us, you’ll like us.
Spam Settlement Restricts E-Mail Marketing in New York
Last month, New York’s Attorney General announced a settlement against OptInRealBig.com, a bulk e-mail marketing company based in Colorado. Although much of the settlement focused on clearly deceptive spamming practices (e.g., using forged “sender” names and addresses to hide the source of the e-mail, using names of well-known companies without permission), it also prohibits false or misleading information in the subject line—so called “teaser” lines. As someone who receives lots of unsolicited email, trying to get me to open and read a particular message from someone I don’t know (or don’t think I know) is an increasing challenge to marketers. Using context or other snappy text in the subject line to get me to read these messages, when they cross over the line, may be considered false and misleading and a deceptive trade practice. Trying to induce me to read an e-mail by implying it is personal (i.e., from someone who knows me) or is part of the subject matter of messages I have sent to others, could be deceptive—especially if there is no readily apparent way of determining that it actually is unsolicited commercial e-mail.
The lawyers in Rimon’s Advertising & Marketing Group (yes, I am a member of that one too) are experts on counseling you and guiding you through the maze of laws and regulations so that you stay on the correct side of these lines. Not only are our litigators armed with first-hand experience in dealing with and defending these issues, but Rimon’s transactional and business lawyers are also widely regarded as among the most skilled and knowledgeable in the world. Whether counseling you about e-mail, web policies, “Spam Settlement Restricts E-mail Marketing in New York” privacy on the Internet, e-commerce, web-based sweepstakes, or simply helping protect one of your most valuable assets—your brand—Rimon has the capability and happy-to-help attitude you need. Try us, you’ll like us. Want to know more? Visit us at rimonlaw.com—or, better yet, check out our other resources at www.adlawbyrequest.com.
Think brands, teasers and tag-lines are unimportant? Think again. Few people may remember who Al Dvorin was—but everyone remembers his tag line!
Spyware
A Utah statute, the first in the nation, entitled “The Spyware Control Act,” was originally scheduled to take effect on May 3, but has been delayed by a legal challenge brought by a New York-based company, WhenU.com. WhenU.com filed suit in Salt Lake City on April 12, seeking a declaration that Utah’s new law violates the U.S. and Utah Constitutions. WhenU.com claims the act—which targets software downloaded onto a consumer’s computer that triggers pop-up advertisements—unfairly targets online contextual advertising services that aren’t linked to websites, but instead sells ads based on consumer browsing preferences. The Utah Attorney General agreed to delay the effective date of the Act until the hearing to allow WhenU.com to seek a preliminary injunction delaying implementation of the law. WhenU.com hopes it can persuade the court to delay enforcement until a trial can be held to test WhenU.com’s claims that the law is unconstitutional. At the hearing, WhenU.com’s lawyers argued that regulation of advertising on the Internet is a matter of interstate commerce subject to federal, not state, jurisdiction. Arguing the State’s case, lawyers noted that disrupting a consumer’s browsing and highlighting competitors goods and services is the kind of consumer protection the Utah Legislature has a right to prohibit. In protecting consumers, lawyers for the State also argued that computer users are often tricked into installing such software without adequate disclosures and then find it difficult to remove when unintended or unwanted consequences arise.
WhenU.com noted its software is only installed with consumer consent and that pop-up ads offer consumers useful free features (e.g., weather, screen savers, tool bars) in exchange for allowing software that tracks browsing habits and generates related ads on the screen. With such context-based advertising software, a consumer browsing mortgage lending websites might be offered home loan information from one or more lending institutions. Stay tuned.
L.L. Bean Sues Over Pop-Up Ads
L.L. Bean filed lawsuits last month against Nordstrom, J.C. Penney, Atkins and Gevalia alleging they used pop-up ads that appeared when customers visited the retailer’s website. Each of the retailers named in the action had retained Claria, a software company that creates programs which track browsing habits on the Internet and cause windows or “pop up” advertising displays to appear on the user’s computer screen when the user’s browser visits specific websites. At least one State has already enacted legislation attempting to prohibit certain types of software that trigger such pop-ups (See “Spyware”).
CAN-SPAM: It’s Not Phat!
Federal Commercial E-Mail Legislation Takes Effect A major change in the law that affects privacy and commercial e-mail on the Internet took effect on January 1, 2004. The CAN-SPAM Act of 2003 doesn’t simply establish an “opt-out” framework for commercial e-mail, it completely pre-empts state law. Although an individual consumer doesn’t have the right to sue an offender under the Act, the Federal Trade Commission, along with the Attorneys General of each state, do. So what should you know?
First, the Act only applies to commercial e-mail—an e-mail whose primary purpose is promoting a commercial product or service. Although the FTC has not yet promulgated any regulations under the Act, simply because an e-mail has a URL link to a commercial website or refers to product or service doesn’t make it commercial e-mail. There are, of course, certain obvious exemptions built into the law. Product safety recall information or e-mails notifying you about changes or important notices concerning your subscriptions, memberships, purchase confirmations, accounts or e-mail related to your employment—all of these are so-called “transactional relationship messages” where the main purpose is communication related to a commercial transaction, rather than promotion or advertising.
Second, what does the law require. Starting January 1, 2004, all commercial e-mail (even if an existing business relationship exists and whether or not the e-mail was solicited or not) must contain a clear and conspicuous notice that a consumer can opt out of future e-mails and provide a web-based means to do so. A consumer’s request to opt out must be honored within 10 business days and marketers can’t sell or share the e-mail addresses of those who have opted out. The e-mail must also clearly identify itself as an advertisement—unless a consumer has specifically asked to receive commercial e-mail from a particular commercial entity. Third, the e-mail must contain a postal, physical address of the sender. Although it is not yet clear if a post office box is enough, the less-risky approach is to have a street address.
The Act has a number of other requirements related to labeling—for example, the subject (header) must accurately reflect the body or content of the message and the sender (the sponsor of the promotion) must be identified. Although the Act preempts state commercial e-mail laws, beware of the fact that state fraud, trespass and certain consumer protection laws can still apply.
Violations of the CAN-SPAM Act are criminal offenses and involve both fines and potential jail time upon conviction. As with most Federal crimes, aggravating factors increase the penalties and implementing good faith and reasonable measures to attempt to comply with the Act can lessen them. These penalties can be serious—jail-time of up to five years, $250 per e-mail up to $2 million in fines (which can be tripled up to $6 million if aggravating factors are present) and all computers and software used in the commission of the crime can be forfeit.
Although the primary purpose of Legal Bytes is to enlighten and inform you, it obviously does promote Rimon and encourages you to call us when you need legal support. Accordingly we will always give you the opportunity to opt out of receiving our publication by email and when we send you an e-mail, it will be clear as to what it is and who is sending it. This is not just the law, it’s good practice.
Instant Messaging – SEC Regulations Likely
According to the TowerGroup (Bank Technology News, January 2004), an estimated 15 percent of the securities industry in North America uses Instant Messaging for sharing market-related data with client. As we mentioned in our July 2003 issue, the NASD is already requiring member firms to retain records of instant messages for at least three years, and is requiring them to supervise the use of instant messaging technology by their employees. It is likely that
SEC regulations will emerge specifically on the subject this year or next year at the latest.
In the meantime, most securities dealers are choosing to be safe rather than sorry, and are attempting to apply the same rules they have for e-mails to instant messages as well—although the technology isn’t going to make that chore easy. Stay tuned.