Ladas & Parry - Domain Names & E-Commerce - Overview of U.S. Laws Relating to E-Commerce

Domain Names & E-Commerce / E-Commerce / Overview of U.S. Laws Relating to E-Commerce

6. Consumer Protection and Unfair Competition

Most traditional remedies are available and new uses have been found for some torts originally designed to deal with other types of wrong-doings.

At the federal level, Section 5 of the Federal Trade Commission Act declares that unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are unlawful and gives the Federal Trade Commission (FTC) the task of preventing most businesses that are not otherwise regulated, from using unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce. [48] Additionally, other specific traditional protections such as the Magnusson Moss Act [49] and the Fair Credit Reporting Act [50] apply to computer transactions equally as to other types of transaction. The Securities and Exchange Commission has issued guidelines as to the application of the 1933 Securities Act to online trading which are available at www.sec.gov/rules/concindx.htm#int.

More recently, the Computer Fraud and Abuse Act [51] has made illegal certain actions in respect of computers used in interstate or foreign commerce. The Federal Bureau of Investigation and the National White Collar Crime Center have set up an Internet Fraud Complaint Center in Morgantown West Virginia to which Internet fraud complaints may be submitted online to www.ifccfbi.gov. The Federal Trade Commission has a website to assist those who re the victims of "identity theft" at www.consumer.gov/idtheft.

Also at the federal level, and also at the state law level, [52] interesting use has been made of the anti-dilution provisions of the trademark law.

At the state law level, the tort of trespass to chattels has suddenly become much more important than in the past.

6.1 The Federal Trade Commission Act

As noted above, this Act charges the Federal Trade Commission with the prevention of unfair and deceptive practices in commerce. In addition to making enforceable rules in certain cases, the Commission also seeks to achieve its aims by the publication of guidelines for the benefit of different industries. Among the guides that have been issued is one relating to advertising on the Internet. The FTC has issued guidelines as to what it considers to be fair in connection with advertising on the Internet, pointing out that its general guides on advertising are equally applicable to the Internet but giving guidance as to how to implement, for example, requirements that certain features of an advertisement must be clear or conspicuous.

The guidelines state that rules relating to direct mail advertising apply to e-mail and that so far as advertising on the web is concerned, the following points should be noted:

Features of Disclosures that are required to prevent an advertisement from being misleading, to ensure that consumers receive material information about the terms of a transaction or to further public policy goals, must be clear and conspicuous. In evaluating whether disclosures are likely to be clear and conspicuous in online advertisements, advertisers should consider the placement of the disclosure in an ad and its proximity to the relevant claim. Additional considerations include: the prominence of the disclosure; whether items in other parts of the ad distract attention from the disclosure; whether the ad is so lengthy that the disclosure needs to be repeated; whether disclosures in audio messages are presented in an adequate volume and cadence and visual disclosures appear for a sufficient duration; and, whether the language of the disclosure is understandable to the intended audience.

To make a disclosure clear and conspicuous, advertisers should:

• Place disclosures near, and when possible, on the same screen as the triggering claim.
• Use text or visual cues to encourage consumers to scroll down a web page when it is necessary to view a disclosure.
When using hyperlinks to lead to disclosures:

• Make the link obvious;
• Label the hyperlink appropriately to convey the importance, nature and relevance of the information it leads to;
• Use hyperlink styles consistently so that consumers know when a link is available;
• Place the hyperlink near relevant information and make it noticeable;
• Take consumers directly to the disclosure on the click-through page.

• Assess the effectiveness of the hyperlink by monitoring click-through rates and make changes accordingly.
• Recognize and respond to any technological limitations or unique characteristics of high tech methods of making disclosures, such as frames or pop-ups.
• Display disclosures prior to purchase, but recognize that placement limited only to the order page may not always work.
• Creatively incorporate disclosures in banner ads or disclose them clearly and conspicuously on the page the banner ad links to.
• Prominently display disclosures so they are noticeable to consumers, and evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the web page.
• Review the entire ad to ensure that other elements—text, graphics, hyperlinks or sound—do not distract consumers' attention from the disclosure.
• Repeat disclosures, as needed, on lengthy websites and in connection with repeated claims.
• Use audio disclosures when making audio claims, and present them in a volume and cadence so that consumers can hear and understand them.
• Display visual disclosures for a duration sufficient for consumers to notice, read and understand them.
• Use clear language and syntax so that consumers understand the disclosures.

Examples are given of the application of these guidelines to particular situations. The guidance can be found at http://www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html

In addition to the cases noted below where it has acted against spammers, the FTC has also taken action, for example, in cases of pagejacking, that is where someone copies the page identifiers of a legitimate page, including its meta tags but attaches its own content to the identifiers so that search engines seeking the identifiers in question will in fact direct searchers to the pagejackers site rather than the legitimate one. Thus in FTC v. Pereira, [53] the FTC took action against pagejackers who diverted searches to certain sexually explicit sites and then sent commands back to the users computers which immobilized the users' "back" and "close" commands, something referred to as "mouse trapping". The FTC obtained a preliminary injunction for breach of Section 5(a) of the FTC Act on account of the pagejackers unfair or deceptive acts.

6.2 The Computer Fraud and Abuse Act [54]

The Computer Fraud and Abuse Act has made illegal certain actions in respect to "protected computers", which are defined as being computers used in interstate or foreign commerce or communication or computers used exclusively by financial institutions or the United States Government or computers used by financial institutions or the United States Government, albeit not exclusively, where the act in question affects use by or for a financial institution or the United States Government. [55] Among the acts covered are:

intentionally accessing and gaining information from any protected computer if the conduct involved any interstate or foreign communication or any information contained in a financial record of a financial institution or a credit card issuer;

knowingly and with intent to defraud accessing a protected computer and thereby furthers the intended fraud and obtains something of value worth more than $5,000 in any one year period;

knowingly causing the transmission of a program, information, code or command and as a result of such conduct intentionally causes damage without authorization to a protected computer;

intentionally accessing a protected computer and thereby causing damage; and

knowingly and with intent to defraud trafficking in any password or similar information through which a computer may be accessed without authorization.

Among additional crimes covered by the Act are various unauthorized actions taken against U.S. Government computers.

The statute has been used in the prosecution of, for example, the originator of the Melissa virus, computer hackers who hacked into AT&T and others' teleconferences to obtain credit card information, hackers who hacked into U.S. Government and NATO websites. [56] Additionally, the statute has been invoked to bring civil actions against website operators who intentionally placed "cookies" on visiting users' computers without the user's consent or beyond the scope of the consent granted for purpose of monitoring their web activity. [57]

6.3 Trademark Anti-dilution

Under the Federal law relating to dilution of trademark rights, commercial use of a trademark owned by another which was a "famous" mark before the use complained of began, is actionable, if that use presents a likelihood of dilution of the distinctive value of the mark. [58] The Federal statute contains a number of factors that need to be considered before deciding that a mark is famous so that the statute applies. The most critical factors in establishing a viable claim for dilution are (1) the ownership of a distinctive mark and, (2) a likelihood of dilution. [59] The likelihood of dilution element can be established either by showing a "blurring" or by a showing of "tarnishment." [60] When the statute does apply, it has been used not only in cybersquatting cases but also in cases where unauthorized persons had sent e-mail messages purporting to originate from America Online. [61]

6.4 Trespass to Chattels

As a common law tort, this may have different definitions in different states. The application of this tort to computer-related actions has, however, been considered by the courts in a number of states. In California, it has been held that the tort of trespass to chattels requires a showing that there has been "an intentional interference with the possession of personal property" which "has proximately caused injury." [62] In Virginia, it has been held that such a trespass occurs when "one party intentionally uses or interferes with personal property in the rightful possession of another without authorization." [63] The tort becomes relevant to the online environment as a result of the willingness of the courts to accept that sending electronic signals to a computer owned or in the possession of another can constitute an unauthorized use of that computer.

Some states have specific computer trespass statutes. For example, in Georgia:

Any person who uses a computer or computer network with knowledge that such use is without authority and with the intention of: (1) Deleting or in any way removing, either temporarily or permanently, any computer program or data from a computer or computer network; (2) Obstructing, interrupting, or in any way interfering with the use of a computer program or data; or (3) Altering, damaging, or in any way causing the malfunction of a computer, computer network, or computer program, regardless of how long the alteration, damage, or malfunction persists shall be guilty of the crime of computer trespass. [64]

An interesting survey of the possible causes of action that may arise from allegedly unfair acts in the on-line world is found in the case of eBay Inc. v. Bidder's Edge Inc. [65] eBbay conducts auctions on the Internet. Bidder's Edge trawled eBay and other auction sites to produce lists of goods that were being auctioned on the Internet at a number of sites and then supplied this cumulated information to its subscribers. The parties had attempted to reach an agreement whereby Bidder's Edge could do this legitimately and indeed eBay had given Bidder's Edge limited permission to do so at various times. However, the negotiations broke down and Bidder's Edge continued to trawl eBay's site using software robots operating through proxy servers for the purpose. The manner of Bidder's Edge's operations made it technically difficult for eBay to prevent Bidder's Edge's activities without risking jeopardizing service to its own legitimate users. EBay, therefore, sought a preliminary injunction to stop Bidder's Edges's trawling of its site.

The causes of action pleaded were: 1) trespass to chattels; 2) false advertising; 3) trademark dilution; 4) computer fraud and abuse; 5) unfair competition; 6) misappropriation; 7) interference with prospective economic advantage; and 8) unjust enrichment.

After determining that eBay had established the possibility of irreparable harm and that Bidder's Edge had not shown a balance of hardships weighing in its favor, the Court went on to consider the likelihood of eBay's success on the grounds pleaded. However, since it found eBay's case made out in respect of the allegation of trespass to chattels, it did not proceed beyond the first ground pleaded. Based on a prior case relating to unauthorized use of long distance telephone lines, [66] the court concluded that the electronic signals sent by Bidder's Edge to extract information from eBay's computers were sufficiently tangible to be the agents of trespass. This being the case, since such signals intentionally and without authorization interfered with eBay's possessory interest in its computer system and eBay had shown that damage was likely to result, the Court concluded that eBay was likely to prevail at trial. The court rejected an argument made by the defendants that such a use of the common law was preempted by the Federal Copyright's statute on the ground that what was involved here was a physical use of another's personal property, which was not something falling within the intended scope of the copyright statute.

6.5 Unsolicited E-Mail

No federal law currently exists to curtail the practice of "spamming." [67] Although several bills have been introduced in Congress in the last two Congressional sessions, none is expected to be approved any time soon. [68] Most notably among the pending anti-spam legislation are the Ant-Spamming Act of 2001 [69] and the Can Spam Act of 2001 [70]. The Can Spam Act of 2001 would provide criminal penalties to any person who knowingly initiates the transmission of unsolicited electronic mail which:

a) contains fraudulent header information;
b) contains misleading header information;
c) does not provide a working return e-mail address;
d) is sent after the recipient has previously objected to the receipt of such mail;
e) does not contain the following:

(i) identification that the message is an advertisement or solicitation;
(ii) notice of opportunity to decline to receive further unsolicited commercial electronic mail messages from the sender; and
(iii) a valid physical postal address of the sender. [71]

The FTC would be granted authority to promulgate rules and regulations and the power to enforce same under The Can Spam Act of 2001.

The absence of federal law directly addressing the practice of spamming has caused the courts to be creative in dealing with it, using remedies as diverse as the common law relating to trespass to chattel, to theories based on trademark dilution on the ground that subscribers to, say, America Online would have a lesser respect for the trademark if they received unsolicited e-mail through it as well as attempts to use the Federal Trade Commission Act and the Computer Fraud and Abuse Act.

Among the cases dealing with this issue are:

America Online, Inc. v. IMS. et al.,[72] in which AOL implemented the Lanham Act (trademark act) successfully alleging that the originator of mass unsolicited e-mail transmissions though its Internet service provider system who used the "AOL" marks in its headers constituted a false designation of origin under 15 U.S.C. § 1525. The unauthorized sending of bulk e-mails through AOL's servers harmed AOL's business goodwill and this sufficed under Virginia's common law relating to trespass to chattels.

A similar conclusion was reached under Ohio law in CompuServe Inc. v. Cyber Promotions. [73]

America Online, Inc. v. Cyber Promotions [74], arose from action by AOL to curb Cyber, an advertising agency, from sending unsolicited e-mail to AOL subscribers. Cyber claimed that under the freedom of speech provisions of the First Amendment it had the right to do so. A federal court ruled that Cyber Promotions did not have a First Amendment right to send unsolicited e-mail over the Internet to subscribers of a private service provider because America Online was not the equivalent of a "state" actor. The court also held that AOL could use blocking software to prevent its subscribers from receiving e-mail from Cyber Promotions.

In Hotmail Corp. v. Van Money Pie, Inc. [75], a federal court in California granted an injunction to the plaintiff Hotmail Corp. finding that it was likely to prevail on theories such as breach of contract and claims based on the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. In this case, however, the defendant's actions included knowingly transmitting false information and deliberately inducing recipients of the false information to e-mail complaints to the plaintiff thereby forcing the plaintiffs to withhold or delay the use of computer services in its legitimate business.

FTC v. Maher, [76] in which the Federal Trade Commission invoked violations of the Federal Trade Commission Act against a "spammer." The defendant did not interpose an answer and a default judgment was granted against the defendant.

In FTC v. ReverseAuction.com Inc. [77] the FTC brought an action under Section 5 of the FTC Act as being a deceptive or unfair act against a party that carried out reverse auctions on the Internet which had harvested information on e-Bay's customers and then sent them spam. In order to carry out its harvesting activities, ReverseAuction had become a subscriber to e-Bay and had agreed to comply with e-Bays's User Agreement and Privacy Policy. The spam gave wrongly stated that customers iD with e-Bay would expire "soon" and gave the impression that it had been authorized by e-Bay. The defendants submitted to a consent judgment which barred them form harvesting personal information form a competitor's site and sending deceptive spam to those customers of the competitor using the information so obtained.

In America Online v. LOCGM, Inc [78] the Computer Fraud and Abuse Act was used to bring an action against a defendant who had used extractor software programs to obtain addresses for intended recipients of its mass e-mailings. The Lanham Act was amended to prevent dilution of trademark rights was also invoked on the basis that AOL's mark was a distinctive mark as required by the statute and it had been tarnished by routing of unsolicited e-mails through its computers.

Although there is currently no federal law in place prohibiting the transmission of "spam", approximately twenty-two (22) states have anti-spam laws in effect. [79] However, these laws have gone largely untested due to the fact that most consumers will not initiate a court action simply by being "spammed." Furthermore, despite the fact that many online service providers have installed anti-spam equipment on their mail servers, vast numbers of mail servers still exist in countries like China where anti-spam equipment is not prevalent or a priority. Lack of anti-spam equipment very often makes it difficult to identify the source of the spam, further leading to the dearth of case law brought under the state anti-spam statutes. [80]

Although very few cases have been brought under California's anti-spam legislation [81], this statute recently survived a challenge on constitutional grounds. In Ferguson v. Friendfinders, Inc. ,[82] the plaintiff was the recipient of unsolicited commercial e-mail from the defendants who were electronic advertisers. Plaintiff brought the action on the grounds of negligence, trespass, unfair business and advertising practices and violation of California's anti-spam law. California's anti-spam legislation requires that any person or entity conducting business who causes unsolicited e-mail to be sent must:

(a) establish a toll-free number or valid return e-mail address so that recipients may notify the sender to send any further unsolicited e-mail;

(b) include as the first text in the e-mail document a statement informing the recipient of the toll-free number or return address that may be used to notify the sender not to e-mail any further unsolicited material;

(c) not send any further unsolicited advertising material to anyone who has request that such material not be sent. [83]

The defendants challenged California's anti-spam law by arguing that it serves an unconstitutional interference with interstate commerce because the Internet is a national infrastructure without territorial boundaries which cannot be regulated by individual states. In denying the defendants argument, the Appellate Court flatly rejected the notion that any state regulation of Internet use violates the dormant Commerce Clause. The Court continued that the statute serves a legitimate local purpose in protecting its citizens from deceptive, unsolicited e-mail and actually facilitates e-commerce by eliminating fraud and deception. [84]

Typical state anti-spam statutes provide that no person (i.e., individual, corporation, partnership etc.) shall cause to be e-mailed documents consisting of unsolicited advertising material for the lease, sale, rental, gift offer or other disposition of any realty, goods, services or extension of credit unless such person complies with the requirements of the statute. Typically, such requirements include:

providing a statement informing the recipient that the sender is required to provide a toll-free number and valid e-mail return address so that such recipient may call to notify the sender to cease delivery of any further unsolicited communications; and

in the event a recipient requests cessation of any unsolicited e-mail communications, such communications must cease and desist to said recipient.

The only other state to see its anti-spam legislation challenged and upheld is Washington. Similar to the Ferguson case in California, the Washington Supreme Court upheld the anti-spam law after it was challenged on constitutional grounds based upon the dormant Commerce Clause. [85] The Court found that the law applies evenhandedly to in-state and out-of-state spammers and serves a legitimate local purpose. [86]

[48] 15 USC § 45.

[49] 15 U.S.C. §§ 2301-2312. Title I of this Act authorizes the Federal Trade Commission to develop regulations for written and implied warranties. The Act directs the Commission to establish disclosure and designation standards for written warranties, specifies standards for full warranties, and establishes consumer remedies for breach of warranty or service contract obligations.

[50] 15 U.S.C. §§ 1681-1681(u), as amended. The Act protects information collected by consumer reporting agencies such as credit bureaus, medical information companies and tenant- screening services. Information in a consumer report cannot be provided to anyone who does not have a purpose specified in the Act. Companies that provide information to consumer reporting agencies also have specific legal obligations, including the duty to investigate disputed information. Also, users of the information for credit, insurance, or employment purposes must notify the consumer when an adverse action is taken on the basis of such reports. Further, users must identify the company that provided the report, so that the accuracy and completeness of the report may be verified or contested by the consumer.

[51] 18 USC § 1030.

[52] See, for example California Business & Professions Code 14330.

[53] (E.D. Va. 1999).

[54] See 18 USC § 1030.

[55] See 18 U.S.C. § 1030(e)(2)(a).

[56] See 18 U.S.C. § 1030.

[57] See In re Intuit Privacy Litig. (C.D. Cal. 2001).

[58] 15 U.S.C. § 1125(c).

[59] See id.

[60] See America Online, Inc. v. IMS et al., 24 F. Supp. 2d 548 (E.D. Va. 1998).

[61] See id.

[62] eBay Inc. v. Bidder's Edge Inc, 54 USPQ2d1798 (N.D. Cal. 2000).

[63] America Online Inc v. LCGM Inc, 46 F.Supp 2d 444 (E.D. Va. 1998).

[64] Ga. Code 16-9-93(b). Taking another's property, obtaining property by deceitful means of conversion of another's property by use of a computer is defined as computer theft by subsection (a) of the same section of the Code.

[65] 54 USPQ2d 1798 (N.D. Cal. 2000).

[66] Thrifty-Tel v. Beznik, 46 Cal App 4^th 1559 (1996)

[67] "Spamming" is the practice of disseminating multiple unsolicited copies of junk e-mail over the Internet.

[68] See Loomis, Tamara, Dealing with E-mail Spam, N.Y.L.J., April 11, 2002.

[69] See HR 1017 IH.

[70] See S.630.

[71] See S.630, § 4(a).

[72] 24 F.Supp2d 548 (E.D. Va. 1998).

[73] 962 F.Supp 1015 (S.D. Ohio 1997).

[74] 948 F.Supp. 436 (E.D. Pa. 1996).

[75] 47 USPQ2d 1020 (N.D. Cal. 1998).

[76] 198 F.2d 236 (4^th Cir. 1999).

[77] (D.D.C. 2000).

[78] 46 F.Supp2d 444 (E.D. Va. 1998).

[79] These states include Arkansas, California, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Louisiana, Missouri, Nevada, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia and Wisconsin.

[80] See Loomis, Tamara, Dealing with E-mail Spam, N.Y.L.J., April 11, 2002.

[81] See Cal. Bus. & Prof. Code 17538.4.

[82] See 94 Cal. App. 4^th 1255 (1^st App. Dist.) (2002).

[83] See id. at 1258.

[84] See id. at 1267.

[85] See State of Washington v. Heckel , 143 Wn. 2d 824 (S.Ct. Wash.) June 7, 2001, cert. denied, 122 S.Ct. 467 (2001).

[86] See id.

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