Judge Kocoras Cuts Down $11MM Award Against Spamhaus to $27,000 — e360 v. Spamhaus

[Post by Venkat]

e360 Insight, LLC v. The Spamhaus Project, (N.D. Ill June 11, 2010)

e360 v. Spamhaus is one of these cases that’s been around so long it feels like an old friend. A few years ago, e360 got some press for winning an eleven million dollar damage award against Spamhaus. In a less heralded development, following a bench trial on damages, last week a district judge modified e360′s damage award down to only $27,000 on its tortious interference and defamation claims. I’m not sure what it is about spam that spawns wasteful litigation, but this is yet another example of a lengthy spam dispute which consumed a lot of resources but which ultimately ended with a whimper.

Background: e360 is (was) a company that provided marketing services (including email marketing) to its customers. Spamhaus is a company which maintains a list of alleged spammers and provides “blacklisting” services. In 2006 Spamhaus “listed e360 and [its principal] Linhardt as being involved in transmitting unsolicited email, colloquially referred to as ‘spam.’”

e360 sued Spamhaus alleging claims for tortious interference and defamation. Spamhaus, which is located in the UK, initially appeared, but then “withdrew both its counsel and its answer.” The court entered default in late 2006. e360 then moved for default judgment, relying on the declaration of its executive, David Linhardt. The declaration stated that Spamhaus’s actions resulted in the cancellation of three contracts e360 had with customers, and the loss of the opportunity to work with prospective customers. e360 claimed a total in damages of $11,715,000, and the district judge awarded this amount.

Spamhaus then appealed, challenging jurisdiction, service, and pretty much everything else. The Seventh Circuit rejected most of Spamhaus’s challenges, but found that “a more extensive inquiry” was required on the damages issue. So the case came back to Judge Kocoras for a determination of damages.

Damages: Despite litigating the case vigorously up to this point, when it came to damages, e360 seemed to muster a lot less energy. According to the court, e360 was “slow to provide information requested by Spamhaus . . . [and] missed several [d]eadlines.” I’ll spare readers a detailed discussion on damages, but the court’s take can be summed up as follows:

The unreliability of [e360's] approaches is unmistakably demonstrated by the profound differences in claimed damages profferred at various points during these proceedings. Finally, it strains credulity that a company that made only a fraction of the profits [e360] asks for over the course of its five-year lifespan would have garnered profits in the amounts [e360] set out in [its] testimony or documentary evidence. The profit and loss statement [e360 provided] sets out the company’s overall profits at $332,000. . . . .

At the time of default judgment, the damages claimed were $11,715,000. During discovery, Exhibit 5 was proffered reflecting damages of $135,173,577. At trial, proffered Exhibit 5(a) showed damages of $122,271,346. During final argument, the claimed amount was $30,000,000.

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Note to plaintiffs: if your damages estimates vary by more than $100M from one iteration to the next, chances are you’re not going to get any.

Everyone has their own calculus for when and how far to litigate a dispute, but a case that spanned almost four years and a Seventh Circuit appeal and which resulted in a final judgment of $27,002 doesn’t sound like a particularly good outcome for the plaintiff. If you’re wondering where the odd two dollars came from, the court awarded nominal damages on the tortious interference with prospective economic advantage and defamation claims. The court declined to award injunctive relief.

Spamhaus had a viable Section 230 argument here, but this argument got lost in the procedural quagmire. Section 230(c)(2) protects filtering judgments and insulates “action taken to enable or make available to information content providers or others the technical means to restrict access to material [that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable].” (See Professor Goldman’s post discussing Pallorium v. Jared, a California state appeals court case where the court held that a publisher of list of IP addresses for open relays could not be held liable. See also Zango v. Kaspersky.)

The decision contains a detailed discussion of the volume of emails transmitted by e360, and which customers many emails were sent on behalf of. Ironically, through litigating this dispute, e360 caused to be memorialized in a court order, facts about its email practices (and the email marketing industry in general) that I’m guessing it would prefer not be in the public eye. Two facts jumped out at me from the order. First, e360 sent out 6.6 billion (!) emails through the course of its five year existence. Second, there were some familiar faces among the list of its customers: SmartBargains and Optinbig.