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October 29, 2008
CAN-Spam-a-Friend?--Hoang v. Reunion.com
Hoang v. Reunion.com sidesteps an eagerly anticipated legal dispute over the legality of commercial address book scraping and 'send-to-a-friend' emails, and also highlights the damage that can cascade when a federal Circuit Court woefully misreads a statute.
By Ethan Ackerman
In July 2008, Violetta Hoang filed a class action lawsuit under California's state anti-spam laws against Reunion.com, a Los Angeles-based social network site. On October 6th, the court ruled for Reunion.com, granting its motion to dismiss, but allowing Hoang leave to re-file an amended complaint. While a less-than-3-months turnaround is admirable, this case stands as an apt reminder that haste makes waste.
What was sent?
A series of May 2008 solicitations from plaintiffs' acquaintances were the origin of this suit. More precisely, the series of emails were sent from Reunion.com mail servers but bore the names (and in some cases, addresses) of plaintiff's acquaintances in the 'From' line of the email. The emails also contained subject lines like "[Acquaintance] Wants to Connect with You." The emails were sent by Reunion.com servers because plaintiffs' acquaintances had registered with Reunion.com and at some point agreed to, or failed to opt out of, Reunion.com's address scraping practices. In the lawsuit, plaintiffs alleged that these emails were sent to plaintiffs not by plaintiff's acquaintances, as the email 'From' line and subject suggested, but by Reunion.com after Reunion.com had scraped the plaintiffs' addresses from acquaintances' address books when acquaintances became Reunion.com members. In short, pursuant to a possibly agreed-to Terms of Service, Reunion.com scraped its members' address books and then sent solicitations to the resulting addresses, but also took several steps to make it appear that the solicitation was from the member.
This email-scraping-and-dodgy-addressing practice sounds consistent with other accounts of Reunion.com's less than desirable (or legal) efforts to expand its member base. The site claims tens of millions of registered members, suggesting these email campaigns seem to work. The frequency of critical coverage over Reunion.com's various advertising and data-gathering methods also seems to suggest the tactics are as commonly objectionable as they are effective.
In February of this year, Eric highlighted a Wired article about address book scraping and other common web gathering processes. It's a very interesting area with a lot of thorny legal questions. This post, however, is just about the resulting spam.
But was it spam?
Claiming a violation of all three portions of California's anti-spam law, plaintiff's brought a claim against Reunion.com. Plaintiffs alleged Reunion.com used a falsified, misrepresented or forged 'From' line. Plaintiffs alleged that the subject lines Reunion.com used were misleading. Plaintiffs also alleged Reunion.com used a 3rd party domain name (yahoo.com) without Yahoo's permission.
[Author's aside: From the complaint, which describes several instances of 'From' line name forging, but only one instance of 'yahoo.com' appearing as part of a 'From' line, it sounds like Reunion.com's address book scraping likely picked up an email address that was stored in the name field of a member's address book, rather than some more nefarious domain name forging.]
Smells like spam, so what does the law say?
Rather than denying these accusations, Reunion.com chose to counter with a preemption defense. Reunion.com claimed that its practices were sanctioned by federal law and thus, even if actionable under California law, the federal CAN-SPAM Act preempted plaintiffs' claims.
The CAN-SPAM Act's preemption clause, 15 USC 7707 (b)1, does broadly preempt most state anti-spam laws - "This chapter supersedes any [State law] that expressly regulates the use of electronic mail to send commercial messages." This first sentence makes Reunion.com's preemption defense sound pretty plausible. But wait, as the late night infomercials say, there's more. The rest of the clause identifies a significant exception that preserves many of these state laws - "except to the extent that any such statute, regulation, or rule prohibits falsity or deception in [an email]."
So state law claims, like the plaintiffs', are preempted, except to the extent that the state law addresses falsity or deception, in which case the claims may proceed. Courts have been handling the preemption and preemption exception clauses of CAN-SPAM now for several years, and have had more or less no problem concluding that compliant state anti-spam laws can survive if they fit in CAN-SPAM's exception.
OK, so that's what CAN-SPAM says. Let's compare that to the California state law at issue. As identified above, the plaintiffs made three claims under the California law: a falsified 'From' line, a deceptive subject line, and the deceptive use of a 3rd party's domain name in an email header. All three claims address falsity and deception in an email's header, the core of CAN-SPAM's preemption exception. While Reunion.com might dispute the facts of each claim (not misleading, not false because authorized, etc.) it seems pretty clear that the claims can survive CAN SPAM's preemption test as written.
So if the law passes the CAN-SPAM test, whose preemption test is it failing?
The Reunion.com preemption defense cited two sources - the Mummagraphics holding and an FTC rule-making and policy paper on refer-a-friend email marketing.
The court accepts Reunion.com's first source, the prior Mummagraphics case, and doesn't rely on the FTC's policy paper for its holding. As a result, its discussion of the FTC guidance is a very brief discussion at the opinion's end in its discussion over whether to grant leave to amend.
A brief tangent
Before addressing the Mummagraphics precedent, I want to address the FTC rulemaking and policy paper too. Reunion.com asserts that the FTC rulemaking and policy paper permit, as a matter of law, its address book scraping and subsequent emailing. As a threshold matter, there's the fairly complex question of which portions of the FTC's Rulemaking and policy paper on refer-a-friend emails are actual Rulemakings with the force of law and which are policy guidance. Fun APA stuff. But even if the refer-a-friend portions are construed as a rulemaking, a brief read of the guidance reveals that there's, to put this politely, no sane way to conclude that the guidance makes Reunion.com's actions "as a matter of law, exempt from liability under CAN-SPAM." The guidance is page after page of non-exclusive, hedged discussions of what may make a sender liable. The FTC doesn't hand out any 'exemptions from liability' in the rules. Even this otherwise preemption-accepting court is suspicious of this assertion, stating
The FTC did not rule that a commercial entity whose message is the subject of a "forward-to-a-'friend'" email is, as a matter of law, exempt from liability under CAN-SPAM or that such entity could never be held liable, as a matter of federal law, for initiating an email containing false information. Rather, the FTC found that a determination as to whether such entity is exempt from liability under CAN-SPAM would require a "highly fact specific inquiry.
To further beat a dead horse, I'll just focus the issue a bit more. The guidance discusses when a commercially motivated refer-a-friend email is, and very infrequently isn't, subject to CAN-SPAM's provisions. It is page after page addressing when an email will be held to CAN-SPAM's standards, not on when an email will be held to, or preempted from, a state law's standards. While it may be possible that the FTC rules could categorize a given email as "not covered" by CAN-SPAM, that's not the same thing as preempted by CAN-SPAM. Buried deep within a hypothetical set of facts there might be a negative implied preemption argument that could be teased out of the FTC ruling, but Reunion.com isn't making that argument.
Back to the holding, then...
It's not that common in the development of case law that a significant intellectual error can be traced to one particular case, but that's the case here. This case errs because the court was too quick to rely on the erroneous 4th Circuit holding of Omega World v. Mummagraphics to dismiss.
The Mummagraphics court was faced with a similar suit alleging state and CAN-SPAM claims over emails with similar false and misleading subjects and headers, including subject lines falsely suggesting the recipient had requested the email, and "from:" addresses from unaffiliated domains that were not even in the actual transmission path.
A more critical argument against the Mummagraphics opinion could easily be made, but I'll simply opine that Judge Wilkerson of the Fourth Circuit sent spam jurisprudence down the wrong path in several key respects with this holding. While each of the errors will likely cause a lot of damage, several of them (e.g. the re-writing of the statute's 'materiality' standard, concluding that truthful email body text 'cures' header falsity) only have to do with claims under CAN-SPAM, and not on state law preemption. As a result, I'll focus on the error of Mummagraphics that causes so much headache for preemption claims - what constitutes a "falsity or deception" for purposes of determining preemption.
The statute says 'falsity and deception,' but this court thinks it should say fraud instead, so we now hold that it does...
The Mummagraphics court was faced with a claim under an Oklahoma statute that prohibited falsity and deception in email headers. While acknowledging that 'falsity' means just that - "erroneous, wrong," or "untrue", the court proceeded to construe the CAN-SPAM exception as preempting any state law using any standard less than "fraudulent".
This shift is no angels-on-the-head-of-a-pin difference. It's more analogous to the difference between murder and simple assault. Fraud requires misrepresentation and knowledge of falsity and intent to defraud and justifiable reliance and damage. Fraud is a significant enough legal claim that it has its own pleading standards in Federal court. In contrast, falsity or deception are just individual elements of fraud.
The Mummagraphics court dresses up this statutory re-writing by pointing to instances in CAN-SPAM where a heightened standard beyond 'falsity' is used, and argues that these other instances prove Congress intended a heightened standard. Unfortunately, this argument just proves the opposite. Far from being another instance of the same standard, the other language proves Congress knew how to state the particular standard it wanted. When 'falsity' was intended, as in 15 USC 7707(b)1, 'falsity' was used. When 'fraud' was intended, as in a mere paragraph later in 15 USC 7707(b)2, 'fraud' was used. When 'falsity' wasn't enough, but 'fraud' was too much, as in 15 USC 7701(a)1, 'materially false' was used. When Congress wanted to require actual knowledge, or a specific intent, as in 7704(a)2 and 7702(12), it used the terms "actual knowledge" and "intentionally."
Eh, so Mummagraphics was probably based on an erroneous conclusion, what's the harm?
The Mummagraphics opinion represents a Circuit-level opinion on federal law, so it is wholly binding in state and federal courts in the 4th Circuit and persuasive in all others. Additionally, it construes the scope of federal law, the CAN-SPAM Act, rather than just a particular state's law, so it is, if not controlling, at least pertinent in every case that raises a CAN-SPAM preemption defense. Not surprisingly, the opinion is having an effect. Several courts, even before Reunion.com, have relied on Mummagraphics' impossible to meet preemption standard to summarily dismiss cases raising state law anti-spam claims. State enforcers and legislatures are even starting to take notice and drafting amicus briefs and legislation to circumvent the results of the holding.
More comments about the opinion: Venkat and Tom O'Toole.
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Eric's comments: Ethan makes a persuasive case that the statutory language in CAN-SPAM distinguished fraud from falsity. Nevertheless, I still support the Mummagraphics holding because I always thought it was unnecessary and counterproductive for Congress to let any state anti-spam statute survive preemption. From my vantage point, state anti-spam laws have done nothing useful to curb abusive spam. Instead, they have just littered the court system with junk cases, often from serial entrepreneurial litigants trying to punch lottery tickets. So if Mummagraphics provides defendants with a quick way to squelch unnecessary state law claims, I'm all for it.
I think Ethan is right that this case may misread Mummagraphics to extend the preemption even further than the 4th Circuit intended. Given my predisposition towards broad preemption, this is still a good outcome, but I am more troubled. In particular, I think the Reunion.com approach does not comfortably fit in the refer-a-friend bucket, and their efforts to leverage off the implicit social network connections bring to mind the worst aspects of the Facebook Beacon program. In this sense, the line between a true refer-a-friend program and a pretend referral that's just blatant marketing by grabbing email addresses reminds me a little of the first party/third party marketing representation distinction in 47 USC 230 jurisprudence. If the friend asks the site to send the email, it's a referral and not spam. If the friend provides the email address but doesn't endorse the message, it's governable by CAN-SPAM. This distinction is cloudy in 230 jurisprudence too, and it is giving the SEC fits too. Smells like a paper topic here.
On a personal note, mazel tov to Ethan and his wife on the arrival of their daughter Lily!
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10/30 UPDATE: Venkat's comments include a link to the plaintiffs' amended complaint. It takes a legally correct, tactically courageous approach. Rather than taking the Court up on its invitation to amend the pleadings to meet the various elements of a fraud standard, the plaintiffs' complaint reiterates its earlier falsity standard pleadings and then attempts to distinguish Mummagraphics, or at least limit the holding. The amended complaint distinguishes and notes that the Mummagraphics holding, for all its strong dicta about fraud and broad preemption, only held that CAN-SPAM would preempt a strict liability statute. The plaintiffs then proceed to show that the California statute is more than a strict liability statute, and even helpfully point to 9th Circuit precedent that distinguishes falsity from fraud for federal law purposes, clearly holding falsity as a lesser standard. I suspect Reunion.com could make the strong counter-argument that the Mummagraphics results matter more than the holding, because the Mummagraphics result, preemption, was of an almost identical statute that wasn't strict liability either. But making such an argument only invites closer scrutiny of Mummagraphics and highlights its error. Not only was Mummagraphics' stated holding (strict liability is preempted) inconsistent with the Mummagraphics result (a 'more-than-strict-liability' statute was preempted) but the holding was legally wrong in attempting to re-write the carefully negotiated preemption standard up from falsity to something higher. Before giving the benefit of the doubt to the Mummagraphics court in its re-writing, consider that the precise wording and standards in the preemption provisions of a federal spam law were one of its most-negotiated provisions. They changed from one Congress to the next, were different between various bills in the 108th congress, and were even switched between the different versions introduced and ultimately passed in the 108th Congress.
Posted by Ethan Ackerman at 03:55 PM | Marketing , Spam | TrackBack
October 28, 2008
Federal Circuit Comes to Santa Clara University Next Week
By Eric Goldman
Next week, a three judge panel of the Federal Circuit Court of Appeals will be visiting Santa Clara University and hearing oral arguments in four cases. You can read the briefs of the cases to be heard. (I've attached a summary of the non-patent cases at the bottom of this post.) We have three open events that we invite you to attend.
Case Previews
November 3, 2008
Time: 12 p.m. to 1 p.m.
Bannan 127
A preview of the cases to be heard on the 4th will be given by Santa Clara Law faculty as well as attorneys from Blakely Sokoloff Taylor & Zafman; McDermott Will & Emery; Orrick, Herrington & Sutcliffe; and Cooley Godward Kronish. Lunch will be served. Admission is free, and everyone is welcome (RSVPs not required).
Oral Arguments
November 4, 2008
Time: 10 a.m. to 12 p.m.
The Federal Circuit Court of Appeals will sit at Santa Clara Law on November 4, 2008. A panel of three judges will hear cases from 10 a.m. to noon in the Law School's moot court room. Seating in the moot court room is by invitation only. The oral arguments will also be simulcast to the de Saisset Museum on campus. Seating at the Museum is free and open to the public; no RSVPs required. If you do not have a seat reserved in the Moot Court Room, please go directly to the de Saisset Museum. Read the briefs of the cases to be heard.
Lunch with the Judges
November 4, 2008
Time: 12 p.m. to 2 p.m.
Sponsored by the High Tech Law Institute and the Silicon Valley Intellectual Property Law Association.
Following oral arguments, lunch with the judges will be held in the Mission Room of the Benson Center on campus. Towards the end of lunch, there will be short remarks from the presiding judge followed by a 30 minute question and answer period. The cost for this lunch is free to HTLI benefactors and $50 for everyone else. Registration is required; we will not be able to accommodate walk-ins. Register here.
I want to mention a fourth event, although the event is full:
The Federal Circuit Visits the Valley – Discourse and Dinner
November 5, 2008
Four Seasons, Palo Alto
Time: 2 p.m. to 9 p.m.
On November 5, 2008, the Stanford Program in Law, Science and Technology, the High Tech Law Institute, the Berkeley Center for Law & Technology and the Federal Circuit Bar Association will host a program titled "The Federal Circuit Visits the Valley - Discourse and Dinner" at the Four Seasons Hotel in East Palo Alto. This event is now full.
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A short preview of the non-patent cases:
Rancher v. Peake
The Board of Veterans' Appeals denied the appellant's claim to establish an earlier effective date for her 100% rating for her service-connected schizophrenia. The Board also found that she withdrew her claim seeking a total disability rating based upon individual unemployability (TDIU). The case was appealed to the U.S. Court of Appeals for Veterans Appeals, which declined, based upon a lack of jurisdiction, to consider the appellant's earlier effective date argument. The Court also affirmed the board's finding on the withdrawal of the TDIU claim. The decision has now been appealed to the Federal Circuit Court of Appeals on these two issues.
Hooker v. U.S.
This case is appealed from the U.S. Court of Federal Claims. The appellant claims that the U.S. Government is liable for breach of contracts for trapping beavers and hogs at the Department of Energy's Savannah River Site in South Carolina. At trial, the appellant alleged that a contract modification extended the hog contract and that the Government breached the contract by hindering his performance of the contract. He also alleged that work on the beaver contract exposed him to radioactive contamination about which the Government failed to inform him, and that the trial court should reform the beaver contract to reflect what he would have bid had he known of the alleged contamination. Finally, the appellant argued that the Government acted in bad faith by reducing his work orders and attempting to induce him to abandon his contracts. The trial court held that the appellant abandoned the hog contract and did not attempt to perform additional work; that the appellant did not produce any evidence to show he had suffered damages as a result of the Government's alleged failure to inform him of the contamination and, therefore, there would be no remedy available even if his allegations were true; and that the Government did not act in bad faith in its administration of the beaver or hog contracts. This decision has now been appealed to the Federal Circuit.
Hartland v. U.S.
The appellant is a LLC from Virginia. In its complaint, the appellant states that a valid predecessor of the LLC entered into a contract with the U.S. Department of Agriculture for the sale of a hydroelectric power plant in Vermont. The appellant sued for damages under the Tucker Act for breach of contract. At some point, between the date of the contract and the filing of the suit, the appellant sold the company that was party to the contract that the appellant claims the Government breached. The Court of Federal Claims dismissed the complaint holding that the appellant lacked the privity of contract with the Government that was necessary to establish that the court possessed subject matter jurisdiction to entertain the breach of contract claims. This issue is now on appeal to the Federal Circuit.
Posted by Eric at 05:40 PM | Patents | TrackBack
October 23, 2008
Stockholder Derivative Action Against Yahoo Based on Click Fraud Rebuffed--Brodsky v. Yahoo
By Eric Goldman
Brodsky v. Yahoo! Inc., 2008 WL 4531815 (N.D. Cal. Oct. 7, 2008). The Justia page. Previous blog coverage.
You may recall this stockholder derivative lawsuit against Yahoo alleging that Yahoo hyped its stock prices by overstating its ad business' progress and by inflating revenues through artifices like relaxed anti-click fraud standards. The court has dismissed the complaint with leave to amend, principally on the basis that the plaintiffs have not been specific enough with their allegations. Most of the opinion is rather technical legalese, but I thought the discussion about the click fraud allegations were interesting enough that I've quoted them in their entirety:
Plaintiffs also assert that Defendants made false statements about Yahoo!'s revenues over the Class Period. Plaintiffs allege that Defendants manipulated their click fraud filters and delayed refunds fraudulently to boost revenues. As a result, Defendants' financial statements were overstated by $387 million over the Class Period.
Plaintiffs arrive at the $387 million figure by citing three magazine articles and two press releases. CAC ¶¶ 204-208. Some of these sources estimate that click fraud accounted for ten percent of all pay-per-click revenue in the search industry while other sources estimate the fraud rate as high as thirty-five percent. Plaintiffs adopt the ten percent rate and allege that $387 million of Yahoo!'s $3.878 billion in sponsored search revenue was attributable to click fraud.
Plaintiffs point to the statements by CW 3, CW 6, CW 8, CW 9, CW 10, CW 11 and CW 12 to support the click fraud allegations. For the complaint to survive the pleadings stage, Plaintiffs must describe these CWs' roles in Yahoo!'s revenue recognition process, or whether these CWs had any first-hand knowledge of Defendants' accounting decisions. See In re U.S. Aggregates, Inc. Sec. Litig., 235 F.Supp.2d 1063, 1074 (N.D.Cal.2002) (accounting fraud claim not corroborated by CW statements where “none of the confidential witnesses have any first-hand knowledge of [defendant's] accounting decisions”).
CW 3 worked as an Engineering Manager for Overture until Yahoo! acquired Overture in 2003. After the acquisition, CW 3 worked in the Business Information Systems group at the Overture facility until October, 2004. CAC ¶ 22. CW 3 claims that “Yahoo! decided in late 2004 to ‘relax’ the business rules and filters in the click-fraud detection system.” CAC ¶ 22(d). “CW 3 estimates revenues generated from the relaxation in rules represented approximately 25% of Overture's operating revenue.” CAC ¶ 22(f). CW 3 learned of this rule relaxation from Yahoo!'s Loss Prevention manager. CAC ¶ 22(d). CW 6 was a sales representative for Yahoo! and had regular communication with customers who complained about click fraud. Id. CW 6 noted that “15% of the revenues generated in his/her group was created via click fraud and irrelevant clicks from poor content match.” CAC ¶ 25.
The Court has no basis to determine whether CW 5's or 6's estimates of Yahoo!' s revenues satisfy the pleading requirement under the PSLRA. For CW 5's or 6's statements to carry any weight at the pleadings stage in this action, Plaintiffs must describe their roles in Yahoo!'s revenue recognition process, or whether they had any first-hand knowledge of Defendants' accounting decisions. Also, because CW 3 was not a Yahoo! employee for most of the Class Period, the Court cannot rely on his statements to support claims of false revenue reporting for the entire Class Period.
CW 8 was a Manager of the Overture Loss Prevention organization until February, 2006. CW 8 noted that “there was an effort inside Yahoo! to relax the click-fraud detection standards.” CAC ¶ 27. CW 8 met with Defendant Decker some time after Yahoo! was sued in 2005 for click fraud, and the two discussed click fraud. Id. Through CW 8's statement, Plaintiffs successfully allege that Defendant Decker had general knowledge of the click fraud problem, but Plaintiffs have not shown how CW 8 knows about an effort to relax Yahoo!'s click fraud detection standards, or how CW 8 knows that this effort translated into misstated revenues. Similarly, Plaintiffs have not shown whether CW 8 had any firsthand knowledge of Defendants' accounting decisions. Therefore, CW 8's statements do not support Plaintiffs' allegations of revenue fraud.
*8 CW 9 worked for Yahoo! in the Customer Solutions group from December, 2003 to February, 2007. CAC ¶ 28. Defendant Decker fired CW 9 in 2007, after the Class Period, for mishandling a customer complaint that might have been related to click fraud. Id. CW 10, Engineering Director for Yahoo! until January, 2005, gave Defendant Decker access to the revenue reporting system at the Overture Pasadena facility. CAC ¶ 29. CW 10 observed that Yahoo!'s ability to filter out non-billable clicks was impacted by not having adequate resources, such as enough computer servers. Id . CW 11 worked for Overture and then Yahoo! as an advertising account manager until December, 2004. CAC ¶ 30. CW 11 described “click tsunamis” at Yahoo!, when a search brought up results that led to thousands of unwanted clicks. Id. Advertisers were charged for these clicks, but rarely realized sales from them. Id . Plaintiffs have not shown whether CW 9, CW 10 or CW 11 had a role in Yahoo!'s revenue recognition process, or whether they had any first-hand knowledge of Defendants' accounting decisions. Therefore, their statements do not support revenue fraud allegations either.
CW 12 worked for Yahoo! as an Operations Sales Manager until October, 2006. CAC ¶ 31. At weekly customer service meetings, CW 12 learned that “Yahoo!'s revenues began to decline ‘month by month’ beginning in 4Q 05.” CAC ¶ 31(g). CW 12 attended weekly Customer Service meetings where she learned that “because Yahoo! was not meeting its traffic forecasts, the Company was not attaining its revenue forecasts associated with those clicks in 4Q 05.” Id . CW 12 also recounted that the “running joke at Yahoo! Search Marketing was that there was a ‘dial’ on the click-fraud detection system which Yahoo! turned down at the end of the quarter to allow more billable click activity to be passed on to customers.” CAC ¶ 31(l). Hearing at a meeting that revenue forecasts will not be reached is not equivalent to knowing that Yahoo! misstated its revenues. Similarly, recounting jokes about altering the click fraud dial does not satisfy PSLRA's pleading requirements. See Limantour v. Cray, Inc., 432 F.Supp.3d 1129, 1141 (W.D.Wash.2006) (rejecting confidential witness statements based on “gossip and innuendo”). Therefore, CW 12's statements do not meet the PSLRA's heightened standards to prove revenue fraud either. In sum, Plaintiffs fail to plead with particularity their allegations that Yahoo! issued false financial statements.
It's nice to see the judge recognized there's a difference between click fraud rates in the abstract (whatever those mean) and the rate of actual overcharging experienced by advertisers, which is almost certainly lower. It's also good to see that the judge isn't blindly accepting the scuttlebutt from former employees, many of whom probably have worthless options or a down stock portfolio. In any case, it will be interesting to see if the plaintiffs can produce any witnesses who can testify about the rate of Yahoo's click fraud overcharging sufficient to satisfy legal standards.
Posted by Eric at 11:30 AM | Licensing/Contracts , Search Engines | TrackBack
October 22, 2008
Defamation Lawsuit Against Blogger Dismissed on Jurisdictional Grounds--Fahmy v. Hogge
By Eric Goldman
Fahmy v. Hogge, 2008 WL 4614322 (C.D. Cal. Oct. 14, 2008). The Justia page.
This lawsuit involves the blog hogonice.com (Hog on Ice). The blog's topical coverage includes "Guns, God, Food, Beer, Tools, Politics, and Whining," and the masthead somewhat incongruously displays both the Christian fish and an Israeli flag. There wasn't much that I found interesting at this blog. Some might view it as a paradigmatic example of blogger self-absorption. The blogger self-describes himself as a humorist, so maybe I just missed the punchlines.
The litigants are former classmates from the University of Miami School of Law (class of 1998). They are both licensed Florida lawyers (Fahmy appears to be inactive). The case suggests that the litigants also were romantically involved, although most people know better than to date lawyers, and everyone knows that two-lawyer couples can be BIG TROUBLE.
Perhaps not surprisingly, then, it looks like their breakup didn't go very well. The blogger allegedly said some not-nice-if-untrue things about the plaintiff on his blog, including "labeling her as a mentally ill alcoholic prostitute," calling her a deadbeat and questioning her work ethic. Most people wouldn't take kindly to these characterizations, but describing a lawyer this way is practically guaranteed to spark a lawsuit...
...which is exactly what happened here. The plaintiff sued the Florida blogger in her home court of California. The blogger moved to dismiss for lack of personal jurisdiction. The court initially denied the motion, but in this ruling, reconsiders the motion and grants it. The blogger wasn't subject to general jurisdiction in California, but the plaintiff tries to reach out using the purposeful availment/Calder v. Jones "effects test." This test works when the defendant expressly aims tortious behavior towards the jurisdiction. Here, the defendant responded that he didn't know his ex was living in California, and therefore he didn't aim his remarks at California. The plaintiff introduced some evidence that the blogger knew she was in California, but the court disregards the evidence because it was not sufficiently authenticated. Case dismissed. The blogger's apparent celebratory message suggests that maybe (through divine intervention or otherwise) the parties will find an extra-judicial reconciliation. If that doesn't happen, based on the tenor of lawsuit, I'd be surprised if the case wasn't refiled in Florida.
I've mentioned before that typically no one looks good in defamation lawsuits like this. This case is no exception, especially given that both lawyers are representing themselves pro se, thus inviting the observation that "a lawyer who represents himself has a fool for a client." For example, the plaintiff's case is tossed because she failed to provide insufficient admissible evidence (such as an affidavit) for her factual allegations. Meanwhile, the court spanks the defendant for making filings that exceeded the permitted length, saying that "[a]lthough Defendant is not a member of the California Bar and claims to be "rusty," the Court finds that ignorance is no excuse in this case." Worse, in response to the defendant's factual rebuttals, the court said that it "is not convinced of Defendant's credibility." Ugh.
UPDATE: CMLP has posted a blog post and a case page on this lawsuit.
Posted by Eric at 05:09 PM | Content Regulation | TrackBack
October 20, 2008
American Airlines Sues Yahoo for Selling Keyword Advertising
By Eric Goldman
American Airlines, Inc. v. Yahoo! Inc., 4:2008cv00626 (N.D. Tex. complaint filed Oct. 17, 2008). The Justia page.
Here's a lawsuit I never expected. Fresh off their settlement with Google, American Airlines is suing Yahoo for selling keyword advertising triggered by American Airlines-owned trademarks. I didn't run a redline comparison, but the complaint clearly borrows liberally from the Google complaint, right down to the heavy-hearted declaration that American Airlines doesn't bring this lawsuit lightly (paragraph 6) and the completely meritless vicarious trademark infringement claim (which erroneously uses the language of vicarious copyright infringement).
I'm surprised by this lawsuit for three reasons. First, most SEMs I've spoken with think that Yahoo has a much more trademark owner-favorable trademark policy than Google. Thus, I would have thought that Yahoo would be better positioned and willing to address American Airlines' concerns than Google was, and it's surprising to see that Yahoo couldn't resolve the dispute outside of court.
Second, it wasn't clear that American Airlines "won" its settlement with Google. The settlement was confidential, but after the settlement I could still easily find triggered ads that the lawsuit targeted. So exactly what did Google concede to, and how were those concessions appealing enough to motivate American Airlines to tango again?
By the way, this afternoon I replicated the searches I ran after the Google settlement. American Airlines, aa.com and AADVANTAGE now have no advertisers at all--which is different than in July. Did Google made some systematic changes after the settlement? (Maybe the settlement had a delayed effectiveness, such as to give Google time to build a new tool). Or has American Airlines chased individual advertisers off the search terms? Hmmm.
Third, and most importantly, I just don't see the business case for any trademark owner to sue a search engine. Maybe Google paid off the lawsuit sufficiently to make the effort financially attractive, but as I explained with the Google lawsuit, otherwise I just don't see how American Airlines could possibly be losing enough in "diverted consumers" to justify the litigation expense.
(On that point, paragraph 83(E) of the complaint was particularly laughable, saying that airline purchasers exercise a minimal degree of care when selecting air transportation services online. Really...? I'm sure people are pretty careless about making many-hundred-dollar non-refundable travel plans, just like they pick the wrong pack of gum in the checkout line.)
I'd be surprised if this lawsuit didn't settle like Google's did. If it doesn't, then it could be interesting.
Posted by Eric at 03:35 PM | Search Engines , Trademark | TrackBack
Economics of Reputational Information Talks
By Eric Goldman
In the past 2 weeks, I traveled around the country presenting different versions of my Economics of Reputational Information research project to three slightly different audiences. As a result, this troika of presentations provides a nice snapshot of how I develop a topic from talk to talk. I've gotten some really terrific feedback on the project. If you have any thoughts on these slides, I would gratefully welcome them. My next step is to work up a definitive outline of my first writing project on this topic, so I'm still at a very early stage that would benefit from your input. My slides from the talks:
* Works in Progress Intellectual Property (WIPIP) Colloquium, Tulane University School of Law
* Midwestern Law and Economics Association Annual Meeting, Northwestern University School of Law
* IP Speaker Series, Cardozo Law School
You may recall my initial post on this topic about my presentation at IPSC at Stanford Law.
Posted by Eric at 10:02 AM | General | TrackBack
October 16, 2008
Search Engine "Cache" Function Covered by Implied License--Parker v. Yahoo
By Eric Goldman
Parker v. Yahoo, Inc., 2008 WL 4410095 (E.D. Pa. Sept. 25, 2008).
Gordon Roy Parker is a serial pro se Internet law plaintiff and putative owner of copyrights in seemingly misogynistic works such as "Outfoxing the Foxes" and "Why Hotties Choose Losers." A quick review of Parker's website reminded me a little of the cute date-movie Hitch, but without any of Will Smith's charm.
Last year, the Third Circuit dismissed Parker's copyright infringement lawsuit against Google over Google Groups. In this ruling, the district court rejects most of his copyright infringement claim against Yahoo and Microsoft over the "cache" option in search results.
[Side rant: I once again protest that calling these copies "cached" copies is a serious bastardization of the term. Despite the mislabeling, the search engines present archival copies, not cached copies, and treating them as equivalent creates significant legal doctrinal tension.]
This lawsuit squarely revisits the ground covered in the Field v. Google case, which Google won for 5 different reasons--including that anyone who posts content to the web knowing that search engines display cached copies impliedly licenses the search engines to do so. Here, the search engines apparently obtained the copyrighted works from Parker's site (instead of from some third party infringing site), and Parker admits he knew of the cache function. As a result, Yahoo and Microsoft can claim an implied license for their cached copies.
However, implied licenses are a weak defense because they can be trumped by express restrictions (see, e.g., Ticketmaster v. RMG). As a result, Parker's claim survives to the extent that Microsoft and Yahoo retained their cached copies after learning of his objection through the complaint filing.
Along the way, the court also says that Parker cannot complain about the search engines' initial robotic collection of the copyrighted works for index inclusion because the Third Circuit's ruling in Parker v. Google implicitly rejected the claim, leading to claim preclusion here. That struck me as a pretty liberal reading of the breezy and brief Third Circuit opinion.
Parker also claimed that individual web users downloading the cached copies are direct infringers. However, the court extends the implied license to them as well. The court offhandedly says that the search engines lack both direct financial benefit from the cached copies and knowledge of the infringement, thus giving further reason to dismiss the secondary infringement claims.
Finally, the court breezily dismisses a breach of contract and negligence claim as being preempted by copyright law. I think the preemption of the breach of contract claim is plainly wrong and should be reversed if the case is appealed.
While Parker's lawsuit (barely) lives to fight another day, overall this is another great opinion for search engines. Once again, courts are finding broad legal protection for basic search engine operations. This lawsuit also reiterated how pro se plaintiffs can be very helpful to an Internet defendant seeking to establish favorable low-cost legal precedent.
More on this case from Jeff Neuburger.
Posted by Eric at 10:31 AM | Copyright , Derivative Liability , Search Engines | TrackBack
October 14, 2008
September 2008 Quick Links, Part 3
By Eric Goldman
eBay
* Universal Grading Service v. eBay, Inc. More fallout from the National Numismatic v. eBay case--another lawsuit alleging antitrust and defamation because eBay designated some coin rating services as preferred and impliedly devalued others.
* Windsor Auctions v. eBay has been refiled in a new jurisdiction.
* Mehmet v. Paypal, Inc., 2008 WL 3495541 (N.D. Cal. Aug. 12, 2008). Upholding the consequential damages waiver in PayPal’s user agreement.
* A company's failure in the marketplace can drive up the value of its collectibles on eBay.
* Stelor Productions, Inc. v. Google, Inc., 2008 WL 4218107 (S.D. Fla. Sept. 15, 2008). In the lawsuit alleging that Google causes reverse confusion of Googles.com [warning: annoying music ahead], the plaintiff doesn't get to depose Sergey or Larry yet. Rose Hagan, Google’s long-time chief trademark counsel, is the lucky substitute.
* Lots of rhetoric in the Google/Yahoo ad syndication deal. Google’s advocacy website. Google Chief Economist Hal Varian explains why the deal won’t raise ad prices in the auction. Randall Stross weighs in.
* Google has changed course and now allows religious groups to advertise on the keyword “abortion.”
* Kubit v. Google Groups, 2:2008cv00738 (M.D. Fla. complaint filed Sept. 29, 2008):
I then would like to sue Google Groups for not removing the posts when I repeatedly asked them to for 2 years. I believe I am entitled to at least a small amount of compensation for the emotional distress and lost business income that has resulted from them allowing these posts to remain on their Google Groups, even though I offered them VERY solid proof that I do not have HIV. If they had stopped the posts when they first occurred, they would not have proliferated to hundreds of websites. I became suicidal for a period of time after the posts started. I incurred a lot of emotional pain and fear because of the posts and had to seek psychiatric and psychological help to get my life back together. I still suffer from fears of dating, living a public business life and trusting others.
Yes, this is a pro se complaint. Yes, it is preempted by 47 USC 230.
Marketing/Advertising
* NebuAd is dead (1, 2). Even so, the lure of intermediaries aggregating deep data about consumers for commercial purposes will never die.
* Is Gator/Claria dead?
* The EU passed a non-binding resolution against sexual stereotypes in advertising.
* Celebrity branded merchandise run amok.
Miscellaneous
* Valleywag: "The 5 most laughable terms of service on the Net." For more laughs, see Mark Lemley’s Terms of Use paper.
* Murakowski v. University of Delaware, 2008 WL 4104087 (D. Del. Sept. 4, 2008). This reminded me a lot of the Jake Baker case from the mid-1990s.
* The Virginia Supreme Court reversed itself on the Jaynes anti-spam prosecution, and Jaynes walks. Does Virginia routinely pass unconstitutional laws?
* Becker v. Toca, 2008 WL 4443050 (E.D. La. Sept. 26, 2008). Ex-wife's alleged delivery of "Infostealer" program to grab passwords from ex-husband could violate the ECPA, SCA and CFAA.
* Interesting article on ESPN’s exclusive distribution and bundling agreements with Internet access providers.
* Silly? Horrifying? A sign of the apocalypse?
Posted by Eric at 06:17 PM | Adware/Spyware , Content Regulation , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam | TrackBack
October 11, 2008
September 2008 Quick Links, Part 2
By Eric Goldman
Copyrights
* In the Harry Potter fair use case, the court declared that the Lexicon encyclopedia isn't fair use.
* The judge declared a mistrial in the Jammie Thomas case.
* Designer Skin v. S&L Vitamins has reached its denouement. Previous blog coverage of the case (1, 2). In the prior ruling, the judge denied the plaintiff damages for the copyright infringement. In the final ruling, the court enjoins cutting and pasting product shots but allows the defendant to recreate the product shots. Ronald Coleman has more here and here (noting that the court says that, per MercExchange, an injunction does not automatically follow from a finding of copyright infringement).
* Wired's 5 year retrospective on the RIAA's litigation campaign against file sharing.
Social Networking Sites, Blogs and Online Publishing
* J.S. ex rel. Snyder v. Blue Mountain School Dist., 2008 WL 4279517 (M.D. Pa. Sept. 11, 2008). Upholding student discipline for creating a fake MySpace page of principal. The school initially based the discipline on the student infringing copyright (by cutting and pasting the principal's photo) but this aspect of the case wasn't mentioned at all in the court’s reasoning.
* O.Z. v. Board of Trustees of Long Beach Unified School Dist., 2008 WL 4396895 (C.D. Cal. Sept. 9, 2008). Two seventh graders make a video about killing their teacher, described as:
The slide show is essentially a dramatization of the murder of Mrs. [redacted]. The first slide photo states, "Mrs. [redacted] dies." Throughout the slide show there are photos of Plaintiff dressed up in a costume, depicting a woman meant to resemble Mrs. [redacted]. There is red text on each slide photo that describes the scene. One slide says, "Jelly Donut's knife: haha fat bastard. here i come!" In this same photo, the viewer can see a butcher knife lunging at Mrs. [redacted] character from the camera's point of view. The butcher knife is then laid on the fallen victim while the text reads, "hehehe. i'm a shank yoooooooooo!" At the end of the slide show, it reads, "your [sic] dead, BITCH! :D".
I think they thought it was funny, but no one else did. One of them posted the video to YouTube. It's unclear what happens to the poster, but the co-content creator was suspended and forced to transfer to another school for her eighth grade. In this case, her TRO request is denied, even if she didn't intend the video to be publicly distributed and even if the video was not a "true threat."
* Spanierman v. Hughes, 2008 WL 4224483 (D. Conn. Sept 16, 2008). Teacher who was fired for inappropriate MySpace communications with students can't sue the school.
* An encouraging update on the Lori Drew prosecution.
* Bill McGeveran on Facebook Beacon and legal liability.
* Good NYT article on the sociology of Facebook and Twitter.
* Sam Bayard on an interesting but confusing ruling from Montana on its shield law applied to anonymous online posters.
* Verdana Partners v. Giles. Online newspaper wins anti-SLAPP claim.
* Jardin v. Datallegro, Inc., 2008 WL 4104473 (S.D. Cal. Sept. 3, 2008). A litigant's taking down a blog post and its comments is not destruction of evidence.
* Nemet Chevrolet has appealed its 230 loss. Previous blog coverage.
* Do Facebook's anti-spam policies overregulate Facebook's power users?
Posted by Eric at 07:49 AM | Content Regulation , Copyright , Derivative Liability , Internet History , Spam | TrackBack
October 10, 2008
September 2008 Quick Links, Part 1 (Special Trademarks/Domain Names Edition)
By Eric Goldman
For some reason, September was an unusually busy Cyberlaw month, so I'm going to have at least 3 installations of my quick links series. This post focuses just on trademark- and domain name-related items from last month.
* Dozier Internet Law v. Riley. The Dozier Internet Law Firm is at it again. I last blogged about John Dozier for his claim that websites infringe copyright by republishing cease-and-desist letters. Now, he’s suing for trademark infringement because, among other things, a website put the Dozier law firm’s name into anchor text without the link going to the firm website. Fortunately, superstar trademark defense litigator Paul Levy of Public Citizen has taken up the matter and initiated a declaratory judgment lawsuit to stop the nonsense.
* Paul Levy is also taking on an “I-can’t-believe-it” trademark enforcement action by the Jones Day law firm. See Paul Levy’s post and their amicus brief. Wendy Davis piles on.
* adidas America, Inc. v. Payless Shoesource, Inc., 2008 WL 4279812 (D. Or. Sept. 12, 2008). The blockbuster trademark infringement damages award of over $300M has been reduced to “only” $65M.
* Miyano Machinery USA, Inc. v. MiyanoHitec Machinery, Inc., 2008 WL 4145649 (N.D. Ill. Sept. 5, 2008). More initial interest confusion silliness, including the court's belief that a defendant’s disclaimer tacitly admits IIC.
* Healix Infusion Therapy, Inc. v. Murphy, 2008 WL 4155459 (S.D. Tex. Sept. 2, 2008). Previous blog coverage of this case. A domain name registrant who isn’t aware of the plaintiff’s trademark lacks the requisite bad faith to constitute ACPA cybersquatting.
* Richard D. Salgado, Piracy and Chaos in the Marketplace of Ideas: Why Money Cannot Be Everything When Assessing Initial-Interest Confusion and Nonprofit Trademark Holders, 61 Ark. L. Rev. 241 (2008). I generally ignore most articles on initial interest confusion, especially those that actually think the doctrine is a good one. However, this one caught my eye because of this paragraph:
This article argues that courts err when they require financial gain as part of the initial-interest analysis where the trademark holder's enterprise is noncommercial. This requirement undermines the value of a trademark for a wide range of potential trademark holders. These holders include nonprofit organizations, churches, schools, and political organizations. These sanctions are what amount to cyber terrorism against others' valuable ideas, messages, and expressions. This problem is particularly relevant in any election year as the Internet floods with websites on behalf of issues and candidates, selling nothing more than an ideology or identity. (emphasis added)
Cyber-terrorism??? Wow. Call Homeland Security pronto.
* The Power of Internet Gripe Sites: Managing the Destructive Potential of "BrandSucks.com." Destructive potential....? Really. Once again, I ask, just how many people still type "[tm]sucks.com" into their web browser?
* I got an email from GoDaddy's PR department touting: "New Go Daddy Product Helps Domainers Get Sites Developed." I'll be interested to see how this plays out. First, given GoDaddy's history of having an itchy trigger finger when it comes to taking down its customers (see, e.g., 1 and 2), I wonder how many domainers are willing to rely on them? Second, if GoDaddy's domainer customers get sued for trademark infringement, I wonder how a court will evaluate a domainer service provider so closely connected to the site content. See the Vulcan Golf v. Google lawsuit.
Posted by Eric at 09:21 PM | Domain Names , Trademark | TrackBack
October 08, 2008
NYC Talk on Economics of Reputational Information
This coming Monday (Oct. 13) at noon, I will be speaking at Cardozo Law School on my Economics of Reputational Information project. If you are in the NYC area, I would love to have you come to the event and share your comments on my work. Lunch will be provided. The details:
Benjamin N. Cardozo School of Law
55 Fifth Avenue
New York, NY 10003
Room 1008
RSVP: ipprogram@yu.edu or 212-790-0207
Posted by Eric at 08:58 AM | General | TrackBack
October 07, 2008
Email Ad Network Isn't Liable for Unsolicited Email--Ferron v. Echostar
By Eric Goldman
Ferron v. Echostar Satellite LLC, 2008 WL 4377309 (S.D. Ohio Sept. 24, 2008). The Justia page.
John Ferron is one of several "repeat" plaintiffs around the country suing over unsolicited email (perhaps not coincidentally, he's also an attorney). In this case, Ferron sued a variety of defendants associated with unsolicited email promoting dish satellite offerings for violations of Ohio's consumer protection law and the Electronic Mail Advertising Act (EMAA).
One of the defendants is Hydra, "a service that connects satellite dish service retailers with companies that advertise by email. The retailers create the advertisements. Hydra then stores the advertisements on its database. Other companies then access Hydra's database and send the advertisements to consumers by email." Hydra does not create the ad content or send the actual emails.
Ohio's consumer protection act has a defense for innocent publishers of ads. Even though the statute does not contemplate the existence of an email ad network, the court says that Hydra is only an "information disseminator" and therefore qualifies for the defense. It was also alleged that Hydra wasn't innocent because Ferron had sent it a copy of his complaint, but the court says that the complaint does not act as sufficient proof of a statutory violation.
The court declines to grant Hydra SJ on the EMAA claim, saying that while Hydra did not "transmit" the email, it could not tell if Hydra "caused" the email to be transmitted. Nevertheless, the court says that, per Mummagraphics, Ohio's EMAA is preempted by CAN-SPAM because it regulates conduct that is not sufficiently fraudulent or deceptive. As a result, Hydra gets SJ on the EMAA claim and is dismissed from the lawsuit.
From my perspective, this case is another example of the larger battle against unsolicited email using state law (such as the many state anti-spam laws). In my opinion, the heavy reliance on state law has led to enormous wasted motion, which is the direct and unfortunate consequence of (1) CAN-SPAM failing to completely preempt all state anti-spam laws, and (2) early opinions (mistakenly, IMO) holding that state anti-spam laws don't violate the dormant commerce clause even though most email senders cannot realistically "steer" their emails into or out of a state.
[This post has been amended in response to emails from John Ferron alleging that my prior post was defamatory.]