An End to Spam Litigation Factories?–Gordon v. Virtumundo

By Eric Goldman

Gordon v. Virtumundo, Inc., No. 07-35487 (9th Cir. Aug. 6, 2009)

When CAN-SPAM was passed in 2003, it was fairly clear that Congress wasn’t trying to enable broad private enforcement. Everyone knew that rabid anti-spammers would seize any new statutory right for a litigation frenzy. As this court says, “lawmakers were wary of the possibility, if not the likelihood, that the siren song of substantial statutory damages would entice opportunistic plaintiffs to join the fray, which would lead to undesirable results.” Although I personally think Congress would better served all of us by omitting all private enforcement rights in CAN-SPAM, unquestionably the private rights in CAN-SPAM are drafted narrowly to prevent their abuses.

That hasn’t stopped some zealous anti-spammers from testing the limits of CAN-SPAM’s private enforcement remedies anyway. James Gordon has been one of the most active. He is a “professional plaintiff” who has operated a spam “litigation factory” by configuring his technology to try to trap spammers. In effect, he goes out of his way to look for spam. As the court says, “the burdens Gordon complains of are almost exclusively self-imposed and purposefully undertaken.”

As it turns out, this business model does not fare well in court. He lost this case in the district court and subsequently was ordered to pay over $100k in legal fees to the defendant under CAN-SPAM’s fee-switching provision. On appeal, the Ninth Circuit has even less kind words for him, saying that CAN-SPAM “was enacted to protect individuals and legitimate businesses—not to support a litigation mill for entrepreneurs like Gordon.” As a result, the court issues a broad but muddy opinion that shuts down Gordon’s litigation factory and presumably others like his, but has a less clear effect on other CAN-SPAM defendants.

“Internet Access Service”

CAN-SPAM’s private enforcement rights only accrue to “Internet access services.” This phrase is troublesome in part because it differs from other possible statutory synonyms for online actors like “interactive computer service” (47 USC 230), “online service provider” (DMCA), “electronic communication service” and “remote computer service” (ECPA), etc. This verbiage proliferation raises questions about the scope of governed entities (who’s covered and who isn’t) and why different online actors are being treated differently (if they are). I hope future legislative drafters will recognize the costs of using different terms for online actors.

In CAN-SPAM, Congress defined an “Internet access service” as “a service 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. Such term does not include telecommunications services.” Check out Ethan’s lengthy but irresolute deconstruction of this definition from last year.

Read literally, this definition seemingly covers all Internet services because they allow users to access their “other” services. However, the Ninth Circuit doesn’t think that’s what Congress meant, although it’s not sure about the boundaries either. Instead, the Ninth Circuit “decline[s] this opportunity to set forth a general test or define the outer bounds of what it means to be a provider of ‘Internet access service.’” Gee, thanks.

Nevertheless, the Ninth Circuit had no problem saying that Gordon wasn’t an Internet access service. I can’t pin down a specific reason why Gordon wasn’t covered while, according to the court, his service providers (Verizon and GoDaddy) might be. Ultimately, I think the court rejects Gordon’s transparent efforts to manufacture a claim.

“Adversely Affected”

A CAN-SPAM private litigant also needs to show that it was “adversely affected” by the spam. The court doesn’t offer a single definition of adverse effect, but it does try to draw some boundaries that leave Gordon out.

In general, the court tries to narrow the scope of cognizable harms in two ways. First, the court segregates consumer-related harms from service provider-related harms. I was heartened to see this because better harm delineation was a central point of my (uncited) 2004 article “Where’s the Beef? Dissecting Spam’s Purported Harms.” Back in the earlier part of this decade, anti-spam advocates would routinely lump together a laundry list of gripes about spam in ways that would degrade policy-makers’ ability to target policy responses to the harm. For example, CAN-SPAM suffers heavily from this schizophrenia about the targeted harm. This court makes it clear that consumer-related harms aren’t part of the CAN-SPAM private litigation calculus.

Second, the court tries to distinguish between the fixed and variable costs of spam fighting and implies that the fixed costs should be ignored when calculating adverse effect. The court’s handling of this distinction is hardly deft. It says repeatedly that we have to assume that IAS providers are absorbing some spam costs as part of their normal costs of operation. For example, the court says:

the harm must be of significance to a bona fide IAS provider—something beyond the mere annoyance of spam and greater than the negligible burdens typically borne by an IAS provider in the ordinary course of business. In most cases, evidence of some combination of operational or technical impairments and related financial costs attributable to unwanted commercial e-mail would suffice

And the court says:

We expect a legitimate service provider to secure adequate bandwidth and storage capacity and take reasonable precautions, such as implementing spam filters, as part of its normal operations….network slowdowns, server crashes, increased bandwidth usage, and hardware and software upgrades bear no inherent relationship to spam or spamming practices. On the contrary, we expect these issues to arise as a matter of course and for legitimate reasons as technology, online media, and Internet services continue to advance and develop. Therefore, evidence of what could be routine business concerns and operating costs is not alone sufficient to unlock the treasure trove of the CAN-SPAM Act’s statutory damages.

Reading these quotes, it seems like the court is trying to zero out the fixed costs borne by anyone connected to the Internet, which would then focus the analysis on only those marginal/variable consequences attributable to a specific spam campaign. However, the court does not want to raise the bar that high, at least not for “legitimate” service providers (which the court thinks clearly excludes Gordon). As the court says:

the threshold of standing should not pose a high bar for the legitimate service operations contemplated by Congress. In some civil actions—where, for example, well-recognized ISPs or plainly legitimate Internet access service providers file suit—adequate harm might be presumed because any reasonable person would agree that such entities dedicate considerable resources to and incur significant financial costs in dealing with spam.

So I’m not quite sure what to make of this language. On the one hand, the court’s acknowledgement that complex societies impose some unwanted but unavoidable costs seems to raise the harm bar pretty high for CAN-SPAM plaintiffs. On the other hand, the court is willing to presume harm for “good” plaintiffs. So why won’t the court make such presumptions for Gordon? Mostly because he “came to the nuisance” (my words, not the court). As the court says:

Gordon purposefully refuses to implement spam filters in a typical manner or otherwise make any attempt to block allegedly unwanted spam or exclude such messages from users’ email inboxes…Gordon made no real effort to avoid, block, or delete commercial e-mail, but instead has voluntarily assumed the role of a spam sleuth. He expends time and resources seeking out and capturing massive volumes of spam, which he collects and then organizes for use in his prolific lawsuits. He admits setting up domains as “spam traps” with the sole purpose of snagging as many e-mail marketing messages as possible.

So my reading of this discussion is that the court sets up a bifurcated “adverse effect” analysis. If you’re a commercial email service provider, you presumptively get access to CAN-SPAM’s “treasure trove.” If you’re a spam troll, nuts to you.

Preemption of State Laws

One of CAN-SPAM’s main raisons d’etre was to preempt the rapid proliferation of state anti-spam laws in the early part of this decade (especially California’s opt-in anti-spam law). I naively assumed that CAN-SPAM’s preemption clause would drive states out of the anti-spam regulation business altogether (a separate rant, but I’m not a fan of any state attempts to regulate Internet activity). No such luck. Following CAN-SPAM’s enactment, nearly every state enacted NEW anti-spam laws designed to fit within the preemption exceptions. This renewed activity at the state level has contributed to the anti-spam litigation frenzy, because the plaintiffs can use both state and federal claims to extract settlements and concessions from defendants.

In 2006, in Omega Travel v. Mummagraphics, the Fourth Circuit took a lot of the wind out of plaintiffs’ sails by holding that state anti-spam laws survived CAN-SPAM preemption only as applied to fraud or material misrepresentations, not garden-variety errors or immaterial deception. Here, the Ninth Circuit adopts the Mummagraphics standard, which presumably eviscerates several state laws in Ninth Circuit-governed jurisdictions.

Applying the Mummagraphics’ standard to Gordon’s case wipes out his Washington state anti-spam claim. Gordon argued that, although he was not misled or deceived, Virtumundo’s “from line” violated Washington law because it does not clearly identify Virtumundo as the sender. He also argued that to avoid being deceptive, Virtumundo’s email subject lines must have either Virtumundo’s or its client’s name. The court rejects these arguments because “Gordon offers no proof that any headers have been altered to impair a recipient’s ability to identify, locate, or respond to the person who initiated the email. Nor does he present evidence that Virtumundo’s practice is aimed at misleading recipients as to the identity of the sender.”

Expect to see more state laws bite the dust in the face of this preemption analysis.

Implications

This case is exceedingly interesting and important because it destroys the arguments of anti-spam plaintiffs trying to manufacture technical violations of CAN-SPAM for their profit. Not only does the opinion send an unmistakable message to the lower courts to toss these plaintiffs out on their keister, but it sends the harsh message that these plaintiffs ought to rethink their legal hubris. As the court says, “As should be apparent here, ‘the law’ that Gordon purportedly enforces relates more to his subjective view of what the law ought to be, and differs substantially from the law itself.” Ouch. The court has apparently just invalidated the fantastic laws that some anti-spam plaintiffs dream up in their heads.

This case is also important because it puts state anti-spam laws even more clearly on the ropes. It has been an impressive but pathetic display of futility watching the states trip over themselves trying to show that they are tough on spam when their efforts are all irrelevant in light of the Fourth Circuit’s and now Ninth Circuit’s interpretations of CAN-SPAM. Fortunately (?), most of the states have moved on to being tough on cyberbullying instead of beating up on spammers.

It is less clear to me if the court’s discussion about “Internet access services” and “adverse effect” will have broader import on private CAN-SPAM litigation. The court deliberately sidestepped definitive interpretations of both terms, so I expect the interpretive slate is mostly clean outside of the spam litigation factories.

One final point. Spam remains actively litigated in the courts and the subject of some policy discussion, but do you still fret about the spam you receive personally? I get the sense that this panel was not that impressed with Gordon’s efforts in part because spam isn’t as big a deal for the judges as it used to be. Certainly that’s true in my case. I get about 100 spams a day, 90+% of which Gmail appropriately filters into my spam folder (with very few misclassifications of legit email as spam). As a result, it takes me just a minute or two a day to burn through the spam accruals. Not surprisingly, at least for me, good spam filters have solved the problem much better than any legislative intervention.

I understand that spam is a bigger issue for email service providers, especially now that more than 100% of all emails are spam (according to the ridiculously overhyped stats put out by vendors of anti-spam solutions). CAN-SPAM partially offers a solution to these individuals, along with other doctrines like the Computer Fraud & Abuse Act and possibly the common law trespass to chattels doctrine. However, at this point, so much of the anti-spam battle has to be fought technologically, not in the courts, due to the sheer volume and dispersed nature of the putative defendants. As a result, it doesn’t really seem to matter to the overall quantum of spam in our society if courts read CAN-SPAM broadly or narrowly.

Other comments on this case:

* Venkat

* Jeff Neuburger

UPDATE: Ken Magill reports on how Gordon has lost his house belongings due to his persistence.

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