CAN SPAM AND JUNK FAXES:AN UPDATE

Hazel A. HallNational City Corporation

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CAN SPAM

• Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN SPAM”)

• Signed by President Bush, 12/16/03, Effective 1/1/04

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CAN SPAM

• What is SPAM?

» SPAM is a registered trademark of Hormel Foods Corp.» According to Hormel, use of the term “SPAM” refers to “unsolicited e-mail

adopted as a result of the Monty Python skit in which a group of Vikings sang a chorus of “Spam, Spam, Spam. . .” in an increasing crescendo, drowning out other conversation. The analogy is applied to unsolicited e-mail was perceived to be drowning out normal discourse on the internet. Footnote No. 1, Yahoo, Inc. v Eric Head, Matthew Head, et.al.

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CAN SPAM Definitions“Affirmative consent” means (a) the recipient expressly consented to receive the message or (b) if the

message is from a party other than the party to which the recipient communicated such consent, the recipient was given clear and conspicuous notice at the time the consent was communicated that sharing of such address was acceptable

“Commercial Electronic Mail Message (CEM)” means electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service, excludes Transactional or Relationship Messages.

“Header Information” means the source, destination and routing information attached to an electronic mail message

“Initiate” means to originate or transmit such message or to procure the origination or transmission of such message

“Recipient” means an authorized user of the electronic mail address to which the message was sent or delivered

“Sender’ means on who initiates a CEM and whose product, service or internet web site is advertised or promoted by the message

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CAN SPAM Definitions – continued

“Transaction or Relationship Message” means an electronic mail message the primary purpose of which is:

» To facilitate, complete or confirm a commercial transaction that the recipient has previously agreed to enter with the sender

» To provide warranty information, product recall information or safety or security information with respect to a commercial product or service

» To provide:

• Notification concerning a change in terms or features• Notification of a change in the recipient’s standing or status with respect; or• At regular periodic intervals, account balance information or other type of account

statement with respectto a subscription, membership, account, loan or comparable ongoing commercial relationship

» To provide information directly related to an employment relationship or related benefits; or» To deliver goods or services, including updates or upgrades

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CEM Requirements

• CEM’s must NOT contain false or misleading transmission information.» Header Information must be clear and may not be obtained by fraudulent

pretenses or representations» The “From” line must clearly identify the parting initiating the CEM» CEMs should not be relayed to disguise the origin of the CEM

• CEM’s must include:» A working Opt-Out mechanism which

• allows a recipient to request not to receive CEMs form the sender of the e-mail; and• such mechanism continues to work for at least 30 days

» Clear and conspicuous identification that the CEM is an advertisement or solicitation

» A valid physical postal address of the sender (Not a PO Box)

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CEM Opt Out Requirements

CEM Opt Outs must be honored within TEN (10) BUSINESS DAYS

Ten day requirement applies to all senders, agents of senders and those who assist in the initiating of CEMsMust not sell, lease, exchange, etc. e-mail address of recipients who have opted outOpt out may be overridden by a subsequent affirmative consent

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CEM Requirements – Sexually Oriented Material• Sexually Oriented Material means any material that depicts sexually explicit

conduct unless the depiction constitutes a small and insignificant part of the whole, the remainder of which is not primarily devoted to sexual matters.

• CAN SPAM required the FTC to establish a mark or notice that would be required to be included in CEM that contains sexually oriented material

• FTC effective May 19, 2004 requires sexually oriented material must include the warning “SEXUALLY-EXPLICIT: ” in the subject line

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CAN SPAM Violations• Address harvesting and dictionary attacks

» If the e-mail address of the recipient was obtained using an automated means from an internet website or proprietary online service operated by another person, and such website or online service, included, at the time the address was obtained, a notice stating that the operator of such website or online service will not give, sell or otherwise transfer addresses maintained by such party to any other party for the purpose of initiating or enabling others to initiate e-mail messages or the e-mail address was obtained by using an automated means that generated possible e-mail addresses by combining names, letters or numbers into numerous permutations

• Automated creation of multiple e-mail on online user accounts• Relay or transmission through unauthorized access to a protected computer

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CAN SPAM Violations – continued• Section 6 of CAN SPAM makes it unlawful for a person to promote, or allow

the promotion of that person’s trade or business, or goods, property, products or services sold through CEMs that have false or misleading transmission information, if the person

» Knows or should have known in the ordinary course of that person’s business or trade that the goods, property, products or services sold were being promoted in such a message

» Receives or expects to receive an economic benefit from such promotion» Took no reasonable action to prevent the transmission or to detect the

transmission and report it to the FTC• Exceptions to Section 6

» No liability to the person if the third party violates CAN SPAM provided:• The person does not own more than 50% of the third party;• The person has no actual knowledge of the violation; AND• The person does not receive, or expect to receive, an economic benefit from such activity

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CAN SPAM – Criminal Offenses• The following activities are criminal offenses:

» Accessing a protected computer without authorization and initiating transmission of a CEM from such computer

» Use of a PC to relay or transmit multiple CEMs with the intent to deceive or mislead recipients or ISPs as to the origin of the CEM

» Materially falsify Header Information in multiple CEMs and intentionally initiating transmission of same

» Use of a false identity to register for five (5) or more e-mail or online user accounts or two (2) or more domain names and intentionally initiate transmission of multiple CEMs from any combination of the above; or

» Falsely represent oneself to be either the registrant or legitimate successor in interest to the registrant of five (5) or more IP addresses and intentionally initiate transmission of multiple CEMs from such addresses

» Conspiracy to do any of the above.

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CAN SPAM Penalties• Statutory Damages

» Each e-mail constitutes a separate violation of $250/per violation up to a maximum of $2Million

» Treble damages for willful and knowing violations or aggravated violations» ISPs may bring civil actions for injunctive relief or actual or statutory damages,

violations are at $100/per violation up to a maximum of $1Million• These damages are subject to reduction if the party has established and

implemented with due care, commercially reasonable practices and procedures designed to prevent such violations, or the violation took place despite commercially reasonable efforts to maintain such practice and procedures

• Criminal Penalties, including one to three years in prison, fines and forfeitures

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CAN SPAM – litigation

• Commonwealth of Massachusetts v. DC Enterprises and William T. Carson (July 1, 2004)• America Online, Inc. v. John Does 1-40 (March 9, 2004)• America Online, Inc. v. Davis Wolfgang Hawke, et al. (March 9, 2004)• Earthlink, Inc. v. John Does 1-25, et al. (March 9, 2004)• Microsoft Corp. v. John Does 1-50 d/b/a Super Viagra Group (March 9, 2004)• Yahoo!, Inc. v. Eric Head, et al. (March 9, 2004) • Microsoft v. RHC Direct, LLC (June 16, 2003) • Microsoft v. Rockin Time Holdings, Inc., et al. (June 16, 2003) • Microsoft v. Tranzact Media, Inc. (June 16, 2003) • Microsoft v. VMC, Inc. et al. (June 16, 2003) • Microsoft v. XPAYS, Inc. (June 16, 2003) • Microsoft v. InterWeb Hosting, LLC, et al. (June 16, 2003) • Microsoft v. John Does 1-20 (June 16, 2003) • Microsoft v. John Does 1-20 (2nd set) (June 16, 2003) • Microsoft v. Daniel Khoshnood, Pointcom, Inc., et al. (June 16, 2003) • Microsoft v. Email Gold, Inc., et al. (June 16, 2003) • Microsoft v. The E-Offer Store (June 16, 2003) • Microsoft v. GiantLinks, Inc., et al. (June 16, 2003) • Microsoft v. Global Media, Inc. (June 16, 2003)

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CAN SPAM – FTC Enforcement 2006

• March 23, 2006 Jumpstart Technologies fined $900,000 and permanently prohibited from unlawful practices (FreeFlixTix promotion)

• April 7, 2006 Optin Global, Vision Media, Qing Kuang “Rick” Yang, and Peonie Pui Ting Chen fined $2.4Million (the gain from the emails, but due to the money being gone will pay $475,000) and refrain from illegal activity (emails hawking mortgage loans and other products/services)

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CAN SPAM – Examination Procedures• FFIEC approved interagency consumer compliance examination procedures • OCC Bulletin 2006-14 issued March 30, 2006

» CAN SPAM Examination Procedures» CAN SPAM Worksheet

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Junk Fax Prevention Act

Signed by President Bush July 9, 2005

Amended the Telephone Consumer Protection Act of 1991 (TCPA)

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Junk Fax Act History• TCPA addressed the telephone marketing calls and certain telemarketing

practices thought to be an invasion of consumer privacy• TCPA prohibits the use of “any telephone facsimile machine, computer, or

other device to send an “unsolicited advertisement” to a telephone facsimile machine.

• “Unsolicited advertisement” means any material advertising the commercial availability or quality of any property, good or services which is transmitted to any person without that person’s prior express invitation or permission.

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Junk Fax Act - History1992 – FCC adopts rules implementing TCPA, including restrictions on

unsolicited facsimile advertisements by facsimile machines1992 Rules followed statute verbatim, however, FCC determined that an

“existing business relationship (“EBR”)” was sufficient to evidence the necessary invitation or permission of recipient to receive the fax

• EBR means “a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a residential subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party.

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Junk Fax Act – HistoryJuly 2003 FCC revised the advertising rules of the TCPA, eliminating the EBR

and concluding that it was necessary to obtain express permission to send facsimile advertisements to customers.

August 2003 FCC issued an Order of Reconsideration delaying implementation of the new rules until January 1, 2005

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Junk Fax Prevention Act – Requirements• Codifies an EBR exemption to the prohibition on sending unsolicited faxes;• Provides a definition of EBR (“a prior or existing relationship formed by a voluntary

two-way communication between a person or entity and a business or residential subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the business or residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party”) to be used in the context of unsolicited faxes;

• Requires the sender of a fax advertisement to provide specified notice and contact information on the fax that allows recipients to “opt-out” of any future fax transmissions from the sender; and

• Specifies the circumstances under which a request to “opt-out” complies with the Act.

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Junk Fax Prevention Act – ImplementationApril 5, 2006

» FCC adopts rules implementing the Junk Fax Prevention Act, in addition to the requirements noted on the prior slide, the rules:

• Require senders to honor opt-out request within the shortest reasonable period of time, not to exceed 30 days;

• Determine not to exempt small business or nonprofit trade associations from the rules; and

• Clarify the term “unsolicited advertisement” (means “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without the person’s prior express invitation or permission, in writing or otherwise”)

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Junk Fax Prevention Act – Penalties

Fines:» Greater of $500 or actual damages» If fax sent willfully or knowingly, triple damages» FCC can impose civil money penalties of $11,000 per violation

Provides consumers with a private right of action in state court for any violation of TCPA’s unsolicited fax advertisement rules

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Junk Fax Prevention Act - Note

STATE LAW NOT PREEMPTED - nothing in the TCPA or in the regulations prescribed under this the TCPA shall preempt any State law that imposes more restrictive intrastate requirements or regulations on, or which prohibits--

» the use of telephone facsimile machines or other electronic devices to send unsolicited advertisements;

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Junk Fax Prevention Act – Litigation / Enforcement• Gold Seal Termite and Pest Control Company, et al. v. PrimeTV, L.L.C., et al.

Cause No. 49D10-0304-CP-0702 Marion Superior Court, Marion County, Indiana

• FCC fined Fax.com $5,379,000 (fax broadcaster) (2004)• FCC fined 21st Century Fax(es) $1,107,500 (2002)

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Junk Fax Prevention Act – Examination Procedures• FFIEC approved interagency consumer compliance examination procedures • OCC Bulletin 2006-15 issued March 30, 2006

» TCPA and Junk Fax Examination Procedures» TCPA and Junk Fax Worksheet

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QUESTIONS?