United States of America v. Impulse Media Group Inc, No. 2:2005cv01285 - Document 38 (W.D. Wash. 2007)

Court Description: ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT; denying 17 Motion for Summary Judgment; denying 23 Motion for Summary Judgment by Judge Robert S. Lasnik.(RS, )
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United States of America v. Impulse Media Group Inc Case 2:05-cv-01285-RSL Doc. 38 Document 38 Filed 06/08/2007 Page 1 of 10 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 UNITED STATES OF AMERICA, 10 11 12 13 Plaintiff, CV05-1285RSL vs. ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT IMPULSE MEDIA GROUP, INC., Defendant. 14 I. INTRODUCTION 15 16 This matter comes before the Court on cross-motions for summary judgment (Dkt. #17) 17 (Dkt. #23) regarding defendant Impulse Media Group, Inc.’s liability under the Controlling the 18 Assault of Non-Solicited Pornography and Marketing Act of 2003, 15 U.S.C. § 7701 et seq. 19 (“CAN-SPAM” or “the Act”), and the Federal Trade Commission’s Adult Labeling Rule, 16 20 C.F.R. § 316 (the “Adult Labeling Rule”). For the reasons set forth below, the Court denies 21 both parties’ motions for summary judgment. 22 II. FACTUAL BACKGROUND 23 Defendant owns and operates dozens of commercial websites that feature sexually 24 oriented videos and pictures. To fully access these websites, customers must subscribe and 25 agree to pay a membership fee. In order to attract subscribers, defendant operates an affiliate 26 program it has labeled “SoulCash.” Under the SoulCash program, affiliates earn money every 27 28 ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -1 Dockets.Justia.com Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 2 of 10 1 time they refer a customer who ultimately subscribes to one of defendant’s websites. To 2 participate in the SoulCash program, affiliates must provide a valid e-mail address and agree to 3 the SoulCash Program Agreement (the “Program Agreement”). See Declaration of Seth 4 Schermerhorn (Dkt. #24) (“Schermerhorn Decl.”), Ex. C. 5 Section 2.3 of the Program Agreement prohibits affiliates from using “any form of mass 6 unsolicited electronic mail solicitations, news group postings, IRC posting or any other form of 7 ‘spamming’ as a means of promoting Your Website for the purpose of directing or referring 8 users to any SoulCash Websites.” Schermerhorn Decl., Ex. C. Section 2.3 also reserves 9 defendant's right to terminate an affiliate for using such techniques, and concludes with the 10 following statement: 13 NOTE: WE HAVE ZERO TOLERANCE FOR SPAMMING. IF YOU SPAM, YOUR PARTICIPATION IN THE PROGRAM WILL BE TERMINATED, YOU WILL BE BARRED FROM FUTURE PARTICIPATION IN THE PROGRAM AND ALL FUNDS OTHERWISE DUE WILL BE FORFEITED TO THE COMPANY. 14 Once an affiliate has signed up for the SoulCash program, defendant provides it with 11 12 15 marketing and promotional tools for use in its affiliates’ referral efforts. These tools include 16 hosted and downloadable photo galleries, banners, pictures of the day, movies of the day, and 17 other online media content. Most of the graphics provided to affiliates are embedded with 18 hyperlinks which direct potential subscribers to defendant’s websites. In addition, defendant 19 provides affiliates with technical support. To track which affiliate is responsible for a particular 20 referral, each affiliate is assigned a unique user ID. Affiliates, in turn, are provided with detailed 21 sales statistics which include the number of sales, number of clicks, referring URL information, 22 and a list of the total dollar amount earned by the affiliate. Affiliates have the choice to be paid 23 a set amount for each customer who subscribes to defendant’s service or for 50 percent of the 24 payments made by a referred subscriber. Defendant also periodically makes bonus payments to 25 affiliates to encourage additional referrals. 26 As part of its efforts to combat spam, Microsoft Corporation created a number of Hotmail 27 28 ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -2 Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 3 of 10 1 e-mail accounts it calls “trap accounts.” These accounts are used by Microsoft to detect spam 2 being sent to Hotmail users in violation of Microsoft's Terms of Use and Anti-Spam Policy. In 3 response to requests from the Federal Trade Commission in or about November 2004, February 4 2005, and April 2006, Microsoft provided the government with hundreds of e-mail messages 5 containing sexually explicit materials that were sent to Microsoft trap accounts by defendant's 6 affiliates. III. DISCUSSION 7 8 A. Summary Judgment Standard Summary judgment is appropriate “if the pleadings, depositions, answers to 9 10 interrogatories, and admissions on file, together with the affidavits, if any, show that there is no 11 genuine issue as to any material fact and that the moving party is entitled to a judgment as a 12 matter of law.” Fed. R. Civ. P. 56(c). An issue is “genuine” if “a reasonable jury could return a 13 verdict for the nonmoving party” and a fact is material if it “might affect the outcome of the suit 14 under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The 15 evidence is viewed in the light most favorable to the non-moving party. Id. “[S]ummary 16 judgment should be granted where the nonmoving party fails to offer evidence from which a 17 reasonable jury could return a verdict in its favor,” Triton Energy Corp. v. Square D Co., 68 18 F.3d 1216, 1221 (9th Cir. 1995), or where there is a “complete failure of proof concerning an 19 essential element of the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 20 (1986). “The mere existence of a scintilla of evidence in support of the non-moving party’s 21 position is not sufficient.” Trinton Energy Corp., 68 F.3d at 1221. 22 B. 23 Defendant’s Liability Under CAN-SPAM and the Adult Labeling Rule Plaintiff alleges that the e-mails sent by defendant’s affiliates violate a number of labeling 24 requirements imposed by CAN-SPAM and the Adult Labeling Rule. Specifically, plaintiff 25 maintains that these e-mails violated 15 U.S.C. § 7704(d) and 16 C.F.R. § 316.4(a) because they 26 contain sexually oriented material and: (1) did not include the required “SEXUALLY- 27 28 ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -3 Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 4 of 10 1 EXPLICIT:” label at the beginning of the subject line; (2) included sexually explicit material in 2 the initially viewable portion of the message; (3) did not include another “SEXUALLY- 3 EXPLICIT:” label in the message itself; (4) did not include a notice of the right to opt-out of 4 receiving further e-mail; (5) did not include a clear and conspicuous display of a valid physical 5 postal address of the defendant. Plaintiff also alleges that the same e-mails violated 15 U.S.C. § 6 7704(a)(5)(A)(ii)-(iii) and 16 C.F.R. § 316.4(a) which applies to all commercial e-mails, 7 whether or not they contain sexually oriented material, by failing to include both clear and 8 conspicuous notice of the opportunity to decline to receive further commercial e-mail messages 9 and a valid physical postal address for defendant. 10 Under CAN-SPAM, liability for injunctive relief falls on those who “initiate” the 11 transmission of a commercial e-mail message to a protected computer1 which violates the above 12 requirements. As used in the Act, “initiate” means “to originate or transmit such message or to 13 procure the origination or transmission of such message, but shall not include actions that 14 constitute routine conveyance of such message.” 15 U.S.C. § 7702(9). Plaintiff does not allege 15 that defendant itself originated or transmitted the e-mail in question, but instead argues that 16 defendant procured the transmission of improper e-mails. Under the Act, parties procure the 17 transmission of an e-mail message when they “intentionally . . . pay or provide other 18 consideration to, or induce, another person to initiate such a message on one’s behalf.” 15 19 U.S.C. §7702(12). 20 Focusing on the word “intentionally” in the definition of “procure” contained in the Act, 21 defendant maintains that to be liable under CAN-SPAM, it must have intended that its payments 22 to, or inducement of, affiliates would result in the sending of commercial e-mail. Defendant 23 argues that it cannot be liable under the Act, because plaintiff has put forward no evidence that it 24 had such an intent. 25 26 27 28 1 “Protected computer” includes all computers used in interstate commerce or communications. See 15 U.S.C. § 7702(13), referencing 18 U.S.C. § 1030(e)(2)(B). ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -4 Case 2:05-cv-01285-RSL 1 Document 38 Filed 06/08/2007 Page 5 of 10 Plaintiff responds that defendant is liable for injunctive relief because Congress explicitly 2 chose to impose liability in such situations regardless of a defendant’s “knowledge” of the 3 violations. In support of this contention, plaintiff points to language in a July 16, 2003 Senate 4 version of the Act that would have imposed such a knowledge requirement on offenders: 5 The term “procure,” when used with respect to the initiation of a commercial electronic mail message, means intentionally to pay or provide other consideration to, or induce, another person to initiate such a message on one’s behalf, knowing, or consciously avoiding knowing, the extent to which that person intends to comply with the requirements of the Act. 6 7 8 S. 877 Sec. 3(13) (July 16, 2003) (emphasis added). This “knowledge” requirement was later 9 dropped from the definition of “procure” contained in the final version of the bill. See 15 10 U.S.C. § 7702(12).2 Plaintiff also points to the fact that the Act’s criminal provision requires 11 that a defendant “knowingly” procure commercial e-mail that fails to place warning labels on 12 sexually oriented material. 15 U.S.C. § 7704(d)(5). It argues that to insert an additional 13 “knowledge” requirement into the Act’s injunctive provisions would make the “knowledge” 14 requirement contained in the criminal provision “mere surplusage.” Plaintiff’s Motion at 26. As 15 a result, plaintiff maintains that it need only “prove that IMG induced affiliates to send email 16 that were in violation of the law.” Plaintiff’s Reply at p. 9. 17 The Court agrees with plaintiff that it need not show that defendant was aware of its 18 affiliates’ violations of CAN-SPAM to obtain injunctive relief. A party can subject itself to 19 injunctive relief whenever it intentionally pays for, or induces, a third-party to send any 20 commercial e-mail message. Once a party intentionally pays for, or induces, a commercial e- 21 mail to be sent, it cannot escape liability for injunctive relief simply because it was unaware that 22 CAN-SPAM provisions were being violated by the party sending the e-mails. In that sense, 23 plaintiff is correct in its statement that CAN-SPAM’s injunctive relief provisions contain “no 24 exception for renegade behavior.” Plaintiff’s Motion at p. 25. 25 26 27 28 2 A similar definition of “procure” was included in the Act’s provision that provides authorization for a private right of action for Internet Service Providers. 15 U.S.C. § 7706(g)(2). ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -5 Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 6 of 10 1 However, given the inclusion and context of the word “intentionally” in the Act’s 2 definition of “procure” the Court cannot conclude that CAN-SPAM triggers liability without a 3 threshold showing that the defendant intended to pay or induce another to send commercial e- 4 mail. While the scope of CAN-SPAM is broad, especially with regard to injunctive relief, its 5 reach is not endless. See Omega World Travel v. Mummagraphics, Inc., 469 F.3d 348, 350 (4th 6 Cir. 2006) (“The CAN-SPAM Act addresses ‘spam’ as a serious and pervasive problem, but it 7 does not impose liability at the mere drop of a hat.”). The Court rejects plaintiff’s effort to 8 characterize the CAN-SPAM Act as a strict liability statute that would ensnare anyone who may 9 have induced another party to send violative e-mails, regardless of whether they intended the 10 party to send commercial e-mails in the first place.3 This interpretation of the Act would render 11 the word “intentionally” in the Act’s definition of “procure” meaningless. See Hart v. McLucas, 12 535 F.2d 516, 519 (9th Cir. 1976) (a statute that explicitly includes an intent requirement cannot 13 be read to establish strict liability). Rather, the plain language of the Act requires that plaintiff 14 prove that defendant intentionally paid or induced another party to undertake the specific act of 15 sending a commercial e-mail. Plaintiff acknowledges this to some extent when it admits that 16 defendant would be shielded from liability if it “accidentally procured the sending of violative 17 spam” because “the inducing would have been accidental rather than intentional.” Plaintiff’s 18 Response at p. 14. 19 The Court also cannot accept plaintiff’s contention that giving meaning to the word 20 “intentionally” in the Act’s definition of “procure” is in conflict with the knowledge requirement 21 contained in other portions of the Act. The intent and knowledge requirements focus on two 22 related, but distinct, sets of facts. The intent element requires that a defendant actually intend to 23 procure commercial e-mail when it solicits another party for services. The knowledge element 24 25 26 27 28 3 Plaintiff argues that caselaw interpreting the Migratory Bird Treaty Act, 16 U.S.C. § 703 and the Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. §§ 331(k) supports its contention that CANSPAM should also not be read to include an “intent” element. Plaintiff’s Response at pp. 10-11. Unlike CAN-SPAM, neither statute includes the word “intentionally” in the relevant portion of its text. ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -6 Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 7 of 10 1 deals with a defendant’s awareness of whether the party it intentionally paid or induced to send 2 commercial e-mails was complying with the requirements of CAN-SPAM. Thus, under the 3 Act’s structure, a party who intentionally induces another to send commercial e-mails, but who 4 is unaware that the other party is violating the Act’s provisions could be subject to injunctive 5 relief, but not to criminal penalties. In that instance, the party would have intentionally induced 6 another to send commercial e-mails, but would not have “knowingly” procured e-mails that 7 violated the terms of the Act. This interpretation is in accordance with what both parties agree 8 was Congress’ intent to stem the tide of unwanted and misleading spam e-mails and to impose 9 liability on not just the “button pushers” but also on those who may attempt to avoid 10 responsibility by intentionally paying or inducing others to be the “button pushers.”4 See 11 Plaintiff’s Response at pp. 10-11; Defendant’s Response at p. 10. 12 Having established that plaintiff must demonstrate that defendant intentionally induced its 13 affiliates to send commercial e-mails, the question becomes whether there are disputed issues of 14 material fact related to the allegation that defendant intentionally induced commercial e-mails in 15 this case. The Ninth Circuit has defined “induce” as “to move by persuasion or influence.” 16 United States v. Rashkovski, 301 F.3d 1133, 1136-37 (9th Cir. 2002). Defendant acknowledges 17 that it intended to induce affiliates to refer customers to its websites, but argues that it intended 18 for affiliates to generate these referrals through its affiliates’ own websites, not through the use 19 of commercial e-mail. The Court concludes that there are disputed questions of material fact on 20 the question of defendant’s intent. See Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999) 21 (questions of intent should typically be resolved by a jury). Both parties’ motions for summary 22 23 24 25 26 27 28 4 The Court is not persuaded by the legislative history cited by plaintiff. Plaintiff’s Response at p. 12. As plaintiff admits, the exchange cited merely confirms that Congress intended that multiple parties could be liable for the same violative e-mail. The Court does not disagree with that contention. The exchange does not shed light on the question of whether a party can be liable under the Act for inducing another to send commercial e-mail if plaintiff has not shown that such inducement was intentional. ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -7 Case 2:05-cv-01285-RSL 1 2 Document 38 Filed 06/08/2007 Page 8 of 10 judgment are therefore denied.5 Plaintiff has put forward evidence to support its theory that defendant intentionally paid 3 its affiliates with the understanding that these affiliates may generate referrals through the use of 4 e-mail. Despite the fact that defendant operated in an industry where illegal spam was prevalent, 5 the evidence indicates that defendant made minimal efforts to screen potential affiliates or to 6 track and punish those affiliates who were violating its e-mail policy.6 Even when defendant did 7 take efforts to terminate an affiliate for improperly sending spam, it appears that they did not 8 always terminate all of that affiliate’s accounts. When combined with evidence indicating that 9 defendant willingly provided its affiliates with marketing materials and technical support that 10 could be used to generate illegal spam, a reasonable fact finder could conclude that defendant’s 11 contractual prohibition of affiliates’ use of e-mail was simply a paper tiger or “sham” intended 12 to provide legal cover for defendant’s efforts to induce its affiliates to do precisely the opposite. 13 That said, defendant has presented evidence that could convince a reasonable fact finder 14 that it did not intend its affiliates to ever use commercial e-mail to drive traffic to its websites. 15 Primary among this evidence is the Program Agreement’s explicit prohibition on the use of “any 16 form of mass unsolicited electronic mail solicitations . . . or any other form of ‘spamming’ as a 17 18 19 20 5 In a recent case involving similar facts, a district court in Arizona also denied both parties’ summary judgment motions after concluding that there were disputed issues of material fact regarding the nature of the relationship between the defendant and its affiliates. United States v. Cyberheat, No. 05457, 2007 WL 686678 (D. Ariz. Mar. 7, 2007). 6 21 22 23 24 25 26 Plaintiff argues that defendant was aware that it was operating in an environment conducive to spamming, and that CAN-SPAM therefore requires it to take affirmative steps to monitor or screen its affiliates to ensure that they were not sending violative e-mails. Plaintiff’s Response at pp. 6-7. As discussed above, CAN-SPAM does not impose a strict liability regime on all who may have a connection to improper e-mail. While certainly some provisions of the Act may impose duties to monitor other parties to ensure that they are complying with CAN-SPAM, no such duties are triggered for those who do not intentionally induce the transmission of commercial e-mails. While the prevalence of the use of spam in defendant’s industry may be relevant to evaluating defendant’s arguments regarding its lack of intent to procure such e-mails through its SoulCash program, it is not sufficient to establish plaintiff’s liability on summary judgment. 27 28 ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -8 Case 2:05-cv-01285-RSL Document 38 Filed 06/08/2007 Page 9 of 10 1 means of promoting Your Website or for the purpose of directing or referring users to any 2 SoulCash Websites.” Affiliates in violation of this provision were subject to having their 3 affiliate status terminated and their referral fees forfeited, and defendant has produced a 4 spreadsheet documenting the termination of twelve affiliates for violating this provision of the 5 contract. Plaintiff’s Response at p. 7. 6 Further, plaintiff has not put forward any direct evidence that defendant ever paid an 7 affiliate for the explicit purpose of sending commercial e-mail or that defendant ever provided 8 its affiliates with marketing or technical support with the knowledge that affiliates were using 9 this support for the production of commercial e-mail. While defendant acknowledges that 10 affiliates were provided with marketing and technical assistance, it maintains that it never 11 intended for such assistance to be used in aid of sending commercial e-mails. Though plaintiff 12 is correct that the marketing materials identified by plaintiff (hosted and downloadable photo 13 galleries, banners, pictures of the day, movies of the day, and interstitials) could be used in e- 14 mails, the same materials could also be used to generate referrals by providing legitimate 15 affiliate websites with content and tools that would drive customer traffic to defendant’s 16 websites. The same holds true for defendant’s provision of technical support to its affiliates. In 17 fact, the language contained on the SoulCash website featuring these tools repeatedly refers to 18 affiliates as “Webmasters,” affiliates’ customers as “surfers,” and the picture and videos 19 provided to affiliates as “webmaster tools.” Schermerhorn Decl., Ex. A. Further, the toll free 20 technical support number provided to affiliates is labeled as “TOLL FREE WEBMASTER 21 SUPPORT” on the bottom of every SoulCash website. Simply because it is technically feasible 22 for these tools to be used by affiliates violating the terms of their contract with defendant does 23 not necessarily mean that defendant intended them to be used in such a manner. The question of 24 defendant’s intent should be resolved by the trier of fact.7 25 26 27 28 7 Plaintiff also argues that defendant is liable for civil penalties pursuant to Section 7706(a) of CAN-SPAM. This provision states that the Act “shall be enforced by the [Federal Trade] Commission as ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -9 Case 2:05-cv-01285-RSL 3 4 Filed 06/08/2007 Page 10 of 10 IV. CONCLUSION 1 2 Document 38 For all the foregoing reasons, both parties’ motions for summary judgment are DENIED (Dkt. #17) (Dkt. #23). DATED this 8th day of June, 2007. 5 A 6 7 Robert S. Lasnik United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 if the violation of this chapter were an unfair or deceptive act or practice proscribed under Section 57a(a)(1)(B) of this title.” 15 U.S.C. § 7706(a). Such penalties are only available if plaintiff can establish that defendant violated a provision of the CAN-SPAM Act and that it committed the violation “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited.” 15 U.S.C. § 45(m)(1)(A). As explained above, there are genuine issues of material fact on the question of defendant’s intent to procure e-mail. As such, plaintiff’s motion for summary judgment on defendant’s liability for civil penalties is also denied. ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT -10