Unsolicited Text Messaging Suit Settles For $7 Million

Weinstein v. Airit2me, N.D. Ill., No. 06-C-0484, Stipulation of Settlement Entered 9/10/08

Facts

In 2005, Timberland Company hired Airit2me, Inc. and GSI Commerce, Inc. ("GSI") to run a product promotion, allegedly, in part, via the use of unsolicited text messaging.
Plaintiffs Jeffrey Weinstein, Lei Shen and a class of similarly- situated plaintiffs (the "Settlement Class"), brought a complaint against the above-referenced parties alleging violation of the Telephone Consumer Protection Act ("TCPA").
The TCPA restricts the use of automated dialing systems, artificial or pre-recorded voice messages and short message service text messages for the sending of unsolicited advertisements.
The complaint alleged that, "Timberland, by and through GSI and Airit2Me, engaged in a marketing campaign in which tens of thousands of unsolicited text message advertisements were sent to the cellular telephones of consumers throughout the country."
On May 28, 2008, the parties engaged in mediation with the help of the Honorable Richard A. Siebel.

The Settlement

Defendants agreed to settle the charges for $7 million (to be paid to a fund for distribution to the class), but denied and continue to deny any wrongdoing.
The settlement class includes wireless telephone subscribers throughout the country who received text messages advertising the sale of Timberland's goods.
Under the settlement, cell phone owners who received the unsolicited text messages are eligible to receive up to $150.00.
Defendants are also required to employ best practices in future marketing endeavors.
The final settlement is scheduled to be approved by the court on December 18, 2008.

Summary

The wireless advertising industry is growing exponentially.
The TCPA prohibits the sending of unsolicited text messages.
Exercise caution and obtain the advice of counsel as to what the Mobile Marketing Association (MMA) Guidelines and the TCPA (and other relevant statutes/regulations) allow for prior to beginning any advertising campaign to wireless devices.

NAD Recommends Juice Maker Discontinue Advertising Claims

October 6, 2008

Facts

The National Advertising Division of the Council of Better Business ("NAD") is the advertising agency’s self-regulatory body.
Pom Wonderful, LLC and Bossa Nova Beverage Group, Inc. are sellers of competing juice products.
Pom Wonderful asked the NAD to review Bossa Nova’s claims contained in its Açai Berry Juice advertising.

Advertising Claims at Issue

NAD reviewed Bossa Nova’s packaging, print and website advertising claims, including the following:

"Bossa Nova sets the standard for antioxidant potency. The proof is in the numbers."
"Bossa Nova is higher in antioxidants and lower in sugars."
"Higher antioxidant potency" and "highest antioxidant fruit."

NAD also looked at two (2) versions of an "Antioxidant Comparison Chart" ("AOX Chart"), comparing Bossa Nova juice to other fruit juices that utilize the antioxidant capacity of the açai fresh fruit pulp instead of that of açai juice.

NAD Findings

NAD concluded that Bossa Nova’s studies were "sufficiently unreliable to support unqualified superiority claims."
NAD also found that using the AOX Chart and the phrase "highest antioxidant fruit" on its bottle label could mistakenly, yet reasonably, be interpreted to be representative of the antioxidant properties of the advertised product.
As a result, NAD recommended that the advertising claims set forth above be discontinued.

Regarding Website Advertising

NAD recommended that future advertising using the AOX Chart should clearly and conspicuously disclose that the Chart represents the antioxidant levels of the fruit (not its juice product) -- and in immediate proximity to the Chart -- must also disclose the Oxygen Radical Absorbance Capacity (antioxidant capacity) of its juice product.

Bossa Nova Reacts

While Bossa Nova respectfully disagreed with NAD’s findings, out of deference to its expertise, the company agreed to institute its advertising and packaging recommendations.

Summary

The industry’s self-regulatory guidelines provide that: "[u]nqualified superiority claims as a general rule should be substantiated by head to head testing against a significant portion of the competing products on the market."
Before launching an advertising campaign, it is imperative that any and all constituent health benefit claims are substantiated through independent clinical studies.

Ohio Spam Law Preempted by CAN-SPAM

Ferron v. Echostar Satellite, LLC, 2008 WL 4377309 (S.D. Ohio Sept. 24, 2008)

Facts

Plaintiff is an attorney who saves email advertisements and then files lawsuits, here complaining that the email messages at issue violated Ohio State law.
After receiving a large number of email messages advertising the services of the Dish Network, plaintiff brought an action under the Ohio Consumer Sales Practices Act ("CSPA") and the Ohio Electronic Mail Advertising Act ("EMAA").
One of the defendants, Hydra Media Group, Inc. ("Hydra"), provides a service that connects satellite dish retailers with companies that advertise via email.
Specifically, a retailer (advertiser) creates the advertisement and Hydra stores the advertisement in its online database. Publishers can then access Hydra’s database and send the advertisements to consumers via email.

Hydra Moves for Summary Judgment – Arguing that:

It is exempt from plaintiff’s CSPA claims because it did no more than disseminate information via its publisher network;
Plaintiff’s EMAA claims against it fail because Hydra itself never sent any email to him; and
Plaintiff’s EMAA claims are preempted by the CAN-SPAM Act.

Relevant Statutes

The EMAA prohibits email senders from providing false and deceptive header information.
The CAN-SPAM Act preempts state laws that expressly regulate the use of electronic commercial messages, "except to the extent that any such statute, regulation, or rule prohibits the falsity or deception in any portion of a commercial electronic mail message…."

Decision

The court granted Hydra’s motion for summary judgment.

The court found that Hydra is only a disseminator of information, that it lacked specific knowledge of any violation of the CSPA and, as such, is exempt from its coverage.
The court declined to grant summary judgment on Hydra’s second argument that it did not "cause" the emails to be transmitted within the meaning of the EMAA (noting that, "a reasonable trier of fact could find that Hydra could have foreseen the transmission of the emails which plaintiff received when Hydra agreed to host the advertisements on its website.")
The court found that the CAN-SPAM Act preempted the Ohio State Act (EMAA), agreeing with the court in Omega World Travel, Inc. v. Mummagraphics, Inc., 469 F.3d 348 (4th Cir. 2006).
The Omega court interpreted the CAN-SPAM Act’s exception to preemption, i.e., the terms "falsity or deception," concluding that "the coupling of ‘falsity’ with ‘deception’ indicated that Congress intended ‘falsity’ to equate with torts involving misrepresentations as opposed to mere errors."
This court agreed with the reasoning in Omega and found that "[p]ermitting states to enforce laws which impose liability for email advertisements which contain only inaccuracies would thwart the goal of Congress in enacting the CAN-SPAM Act."
Here, the plain text of the Ohio State law creates a claim for the mere failure to include certain information in an email advertisement.
The court found that plaintiff failed to provide evidence that would support a fraud claim as required under the CAN-SPAM Act.

Summary

The court found not only that the CAN-SPAM Act preempted the state statute, but it also found the subject pleadings to be insufficient.
Mere allegations that an email address is inaccurate, without also showing that the inaccuracy was an intentional or misleading falsity, is not enough to support a claim under the CAN-SPAM Act.

Two States Pass Mandatory Encryption Laws

Nevada and Massachusetts Laws Require Varying Degrees of Security for Personal and Other Sensitive Information

Nevada Law

Took effect on October 8, 2008.
Broad Language:

"A business in this state shall not transfer any personal information of a customer through an electronic transmission other than a facsimile to a person outside of the secure system of the business unless the business uses encryption to ensure the security of the electronic transmission."

Applies to organizations located, or doing business, in Nevada.
Requires that all such organizations encrypt sensitive personal information when transmitting such information electronically.
Defines sensitive personal information as a person’s name combined with either: a Social Security number, driver’s license number or financial account number.
Businesses must seriously consider the statutory requirements and, if not in compliance, alter the way they protect customer data.

Massachusetts Law

Takes effect on January 1, 2009.
Applies to any entity conducting business with a Massachusetts State resident.
Requires organizations to adopt a comprehensive, written information security program.
Broader in scope than the Nevada law – Organizations must encrypt all transmitted records and files containing sensitive personal information that will travel across public networks, and encrypt all personal information (even non-sensitive information) to be transmitted wirelessly.
Defines sensitive personal information in the same way as the Nevada State law.
Will also require businesses that collect information on Massachusetts State residents to encrypt sensitive personal information stored on laptop computers and other portable devices.
Requires that all data sent over wireless networks be encrypted – not only sensitive personal information.

Summary

Compliance with these new regulations requires careful thought and preparation.
Due to the lack of uniformity between these two (2) varying statutes, including those individuals afforded protection under each law, organizations should consider complying with the law that imposes the most rigorous requirements.
The states of Michigan and Washington are now considering similar regulations.

CAN-SPAM Act Preempts State Law Claim for Fraud and Deception Involving "Forward-to-a-Friend" Emails

Hoang v. Reunion.com, Inc., 2008 WL 4542418 (N.D. Cal. Oct. 6, 2008)

Facts

Plaintiffs were members of Reunion.com.
According to plaintiffs, when a person registers with Reunion.com, the company asks the member to provide the password to the registered member’s email account.
When the member provides the information, Reunion.com uses the password to access the registered member’s email contacts.
Reunion.com’s Privacy Policy provides that it may send email to "certain or all of those contacts" of members and "invites them (the contacts) to join" the Reunion.com website.

The Complaint

Plaintiffs brought an action against Reunion.com concerning these "forward-to-a-friend" emails under the California State Business and Professions Code – a statute that makes it unlawful to send certain commercial email.
Plaintiffs alleged that Reunion.com had "falsified, misrepresented and/or forged header information" by indicating in the email "from line" the name of a Reunion.com member who initially provided an address book of email contacts.
Plaintiffs further complained that the Reunion.com email "subject line" was false or misleading because it was comprised of the following: "[Member Name] Wants to Connect With You" or "Please Connect With Me."

The Defense

Reunion.com argued that plaintiffs’ claims were preempted by the CAN-SPAM Act because they failed to allege any violations of the California State statute that would support a claim for common law fraud or deceit.

The Decision

The court agreed with Reunion.com, citing the decision in Omega World Travel, Inc. v. Mummagraphics, Inc., 469 F.3d 348, 353-56 (4th Cir. 2006) (the CAN-SPAM Act preempts state law claims, unless such claims are for "common law fraud or deceit.")
The court found that plaintiffs failed to allege with requisite specificity why the statements at issue were false and why defendant knew they were false when made; plaintiffs also failed to allege that they relied to their detriment on any misrepresentation which caused them to incur damage.

Leave to Amend Granted

The court granted plaintiffs leave to amend, disagreeing with Reunion.com that a "Final Rule" issued by the Federal Trade Commission exempts it from liability for "forward-to-a-friend" emails under the CAN-SPAM Act.

Summary

While the court found that the state law was preempted by the CAN-SPAM Act, it also permitted plaintiffs leave to amend their complaint.
Plaintiffs have the opportunity to properly allege a complaint against Reunion.com – with the guidance afforded by the decision.
The decision did not address the significance of the privacy policy at hand.
Even with the FTC's recently-issued guidance on "forward-to-a-friend" email transmissions, it is important to obtain advice from counsel prior to launching such a campaign.

Non-ISP Has Standing to Bring Action Under CAN-SPAM Act

Haselton v. Quicken Loans, Inc., 2008 WL 4585314 (W.D. Wash. Oct. 14, 2008)

Plaintiffs’ Motion for Protective Order and for Partial Summary Judgment

Plaintiffs (Haselton, an individual, and Peacefire, Inc., a corporation) moved the court to find that they are "Internet access services" under the CAN-SPAM Act, and, therefore, would have standing to bring this action before the court.

Court Analysis

CAN-SPAM Act -- Congressional Intent:

To be enforced primarily by the Federal Trade Commission ("FTC"), rather than by individual consumers;
There is a limited cause of action for state attorneys general and certain private entities;
CAN-SPAM Act protects plaintiffs that are:
providers of Internet access service ("IAS"); and
adversely affected by a violation of specific provisions of the Act.
The Act defines an IAS as one "that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include access to proprietary content, information, and other services as part of a package of services offered to consumers…."

Decision

The court concluded that plaintiffs had standing to bring their CAN-SPAM claims.
The court found that while Peacefire does not provide Internet connectivity to its subscribers (not an ISP), it does provide supplemental and enhanced access to the Internet. For example, "[i]t provides a service, via its proxy servers, that enables end-users to access blocked Internet content that may otherwise be unavailable to them."
The court held that this "functionality is sufficient to place Peacefire within the statute’s broad definition of Internet access service."
The court found that the harms plaintiffs have described affect them each as an IAS and go beyond the spam-related harms experienced by all consumers and businesses.
The court also pointed out that defendants failed to provide any evidence to counter plaintiffs’ contention that Peacefire provides services to approximately 100,000 users via its dedicated servers.

Summary

Here, the court found that a company enabling access to Internet content can be an "Internet access service" under the CAN-SPAM Act.
In order for a company to have standing to bring a CAN-SPAM action, it must both be an IAS and allege an actionable harm.
The Court relied on earlier cases involving Facebook and MySpace which resulted in similar findings.