United States: Business Compliance With U.S. Anti-Spam Laws

U.S. anti-spam laws present the risk of significant liability for companies that are not "spammers" but communicate in good faith with potential customers and other businesses by e-mail, fax or telephone. Penalties range up to five years in jail and $6 million in fines for unsolicited commercial e-mails and include unlimited civil liability for unsolicited commercial faxes and telemarketing calls. These potentially Draconian consequences for seemingly routine business activities make it imperative for companies to understand and comply with U.S. anti-spam laws. The need for compliance is further enhanced by regulatory and litigation trends, at the federal and state levels, toward stronger enforcement mechanisms against spam. The U.S. has a complex web of federal anti-spam laws and it is important for companies to comply with each law and to know how they can use these laws to fight back against spammers.

The Telephone Consumer Protection Act of 1991, 47 U.S.C. §§ 227 et seq. (the TCPA) has been in effect for over a decade; yet, it has become a significant source of liability for businesses only in the last few years. At its core, the TCPA provides: "[i]t shall be unlawful for any person within the United States to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine." An "unsolicited advertisement" is "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission." The TCPA applies to companies whose goods and services are being advertised by fax and also to fax broadcasters who are hired to execute fax advertising campaigns. The prohibition on unsolicited commercial faxes has several means of enforcement.

First, the TCPA provides a private right of action in state court for the recipients of junk faxes to recover from $500 to $1,500 in damages for each violation. In recent years, the TCPA has become a lucrative source of litigation and multimillion dollar judgments and settlements are commonplace. A Georgia franchise of the Hooters restaurant chain was hit with a nearly $12 million jury verdict in a TCPA class action in 2001. A prominent law firm obtained a summary judgment award of $2.3 million in a TCPA lawsuit it filed on its own behalf in 2003, and in the same year, the Dallas Cowboys settled a TCPA suit for $1.7 million. Demonstrating the TCPA’s fullest potential for liability, a class-action TCPA lawsuit now pending in California against thousands of advertisers and fax broadcasters claims statutory damages of $2.2 trillion.

Second, the TCPA empowers states to sue in federal court over "patterns or practices" of "junk faxing." The most prominent recent exercise of this power is a $15 million complaint filed by the State of California against a fax broadcaster.

Third, the TCPA empowers the FCC to impose fines of up to $11,000 per violation on repeat offenders. This authority has recently resulted in large penalties as well — most notably a $5 million Order of Forfeiture the FCC issued to a fax broadcaster for several hundred TCPA violations.

Compliance with the TCPA is imperative for companies that communicate with consumers and other businesses by fax, either directly or via fax broadcaster. Importantly, a company is not shielded from liability simply because it hired an agency to send faxes on its behalf. On the contrary, companies sponsoring an advertisement are considered primarily liable for any TCPA violations and they share joint and several liability with the actual broadcaster (if different from the advertiser). The need for compliance with the TCPA is particularly strong as the FCC recently narrowed an exception for "established business relationships" which, as of January 1, 2005, will require senders to have a "signed written statement" of each and every recipient’s express, advance consent to receive commercial faxes. The U.S. Congress is considering legislation that would broaden the definition of an "established business relationship," but this issue is the subject of furious lobbying and the outcome is unpredictable. To date, 15 states also have enacted "mini-TCPA" statutes that largely parrot the federal law. Companies accordingly would be wise to consult with counsel and create TCPA compliance plans, audit their fax advertising programs for compliance, review fax lists from vendors to ensure the consent of listed recipients, and include standard-form contract language requiring assurances of TCPA compliance from all list vendors and marketing agencies.

The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, 15 U.S.C. §§ 7701 et seq. (the CAN-SPAM Act), took effect on January 1, 2004, and was the first federal law regulating the transmission of unsolicited commercial e-mail. The act applies to all "commercial electronic mail messages," defined as e-mails with the "primary purpose" of advertising or promoting a commercial product or service. Although the act does not set forth guidelines for ascertaining the "primary purpose" of an e-mail, it instructs the FTC to issue regulations to this effect by January 1, 2005. The act expressly exempts e-mails sent by political, religious or non-profit groups, or "transactional or relationship" messages sent to facilitate, complete or confirm a previously agreed-upon transaction.

The act establishes a series of required disclosures in commercial e-mails, including a clear and conspicuous identification the message is an advertisement or solicitation, a notice of the opportunity to opt out from further messages and a valid physical postal address for the sender. Likewise, the act also contains a series of prohibitions, banning, among other activities, the use of false or misleading transmission information, and the use of "deceptive" subject headings.

The act also identifies certain "aggravated" violations that lead to higher penalties. These include instances where the sender has actual or implied knowledge an e-mail address was obtained by "address harvesting" or a "dictionary attack." Address harvesting occurs when an e-mail marketer uses software to search areas of the internet, such as company websites or chat rooms, to capture or "harvest" e-mail addresses. A dictionary attack is one in which a marketer connects to a third-party’s e-mail server and then rapidly submits millions of random e-mail addresses, then records those that are "live" and adds those to its mailing list.

Most significantly, the act provides criminal penalties for certain activities, including accessing a computer with authorization but then using it to send e-mail messages under another’s name and registering for multiple e-mail addresses from which unsolicited commercial e-mails are sent. Criminal penalties include fines and forfeitures and imprisonment up to a term of five years. On the civil side, although the act provides no private cause of action for e-mail recipients, it is enforced by the U.S. Federal Trade Commission and other federal agencies, state agencies and internet service providers. Civil remedies include damages of up to $750 per violation with a maximum award of $6 million. America Online has been particularly aggressive in seeking to enforce the CAN-SPAM Act. In the last year it has filed several lawsuits against "spammers" who have sent e-mails to subscribers.

Further, the act preempts state laws that expressly regulate commercial e-mail messages, except to the extent the state laws prohibit falsity or deception. The act, however, does not preempt state laws that are not specific to e-mail, such as the law of trespass, contract or torts or state laws relating to acts of fraud or computer crime. Unsurprisingly, state law causes of action under these alternative theories are an increasingly common response to unsolicited commercial e-mail. The act’s preemption provision, therefore, is not a reliable "safe harbor" from liability under state law. This is also true because, currently, at least 29 states have laws regulating the transmission of e-mail and many of these laws contain provisions that may well survive preemption.

Finally, on September 16, 2004, the FTC published a report analyzing the viability of an "informant reward system" to encourage citizen investigation and reporting on violations of the CAN-SPAM Act. The FTC recommended that if Congress were to implement a reward system it would need to focus on identifying the sources of spam, concentrate on information provided by high-value "whistleblowers," and adequately incentivize reporting through rewards on the order of $250,000. The FTC also suggested that an informant reward system should link eligibility to the imposition of court orders against spammers, fund rewards through appropriations rather than collection of civil penalties, and target rewards to high-value information about the most serious spammers. Although congressional action on an informant reward system cannot accurately be predicted, the prospect of such a system suggests that the federal government takes enforcement of the CAN-SPAM Act seriously, and that "whistle-blowing" may occur even at legitimate companies that inadvertently violate the act on a large scale.

As with the TCPA, companies are well-advised to comply with the CAN-SPAM Act. Recommended steps to ensure compliance include audits of e-mail practices and a strict review of the activities of "lead generators" that may violate the law and subject their unwitting clients to significant — and potentially criminal — liability. These steps will become all the more imperative if Congress enacts an informant reward system under the CAN-SPAM Act.

The "Do-Not-Call" Registry, 16 C.F.R. 310.4 & 310.8, was implemented by the FTC in 2003 as a way for consumers to "opt out" of receiving telemarketing calls. In its one year of existence, the registry has swelled to 62 million telephone numbers and has generated 428,000 complaints against over 130,000 companies.

The registry contains the telephone numbers of persons who registered with the FTC, and telemarketers must pay an annual fee — $25 per area code access, up to a maximum of $7,375 —for access to the registry. Telemarketers pay this fee because calls to a registered telephone number are prohibited and may subject the caller to fines and other penalties, unless the caller has obtained the prior express consent of the recipient or has an "established business relationship" permitting such calls.

The implementing regulations further prohibit telemarketers from several "abusive practices" subject to enforcement by the FTC or FCC, such as the following:

• using threats, intimidation or profane language

• calling a person’s residence—without express prior consent—at any time other than between 8 a.m. and 9 p.m. local time at the called person’s location

• failing to disclose the identity of the seller, the fact that the purpose of the call to sell goods or services, or the nature of the goods or services being offered

• disclosing or receiving for payment any unencrypted customer account numbers for use in telemarketing.

The FTC and U.S. Federal Communications Commission are taking aggressive action to enforce the registry’s prohibitions. For this reason, companies are well advised, at a minimum, to pay for access to the registry if they intend to engage in telemarketing of any sort. Companies should also ensure that any telemarketing company they retain also has access to, and abides by, the registry, and contracts should include terms requiring the telemarketer to indemnify its clients for any liability for violations of the registry’s provisions.

Anti-spam laws do not only pose compliance burdens, as discussed above, but can also be used by companies to combat spam faxes and e-mail they may receive. A few common-sense steps will help enhance the prospects of success in such efforts. Of course, these suggestions are not "one-size-fits-all," and this brief recitation is no substitute for legal advice based on the particular situation.

Be sure to preserve the documentary or electronic record because it is impossible to take action against an e-mail or fax spammer without a copy of the "spam" at issue. Also, attempt to identify the sender or faxer. Although this may be nearly impossible for e-mail, it is feasible for spam faxes, often through a review of the fax itself. It is particularly useful to create a document that records the date and time of transmission, the originating and receiving telephone numbers, the sender or sponsor’s name, the telephone number provided for the purchase of the goods or services advertised and the phone number provided to opt out.

It is important to assert and memorialize objections and requests for cessation. Again, especially with regard to spam faxes, call the number provided on the faxes and demand removal from the sender’s fax database. Be sure to record the date and time of such a call. Take any opportunity to speak with an operator or leave a voice message. At the same time, if the identity of the sender or sponsor is not clear on the face of the fax advertisement, attempt to obtain this information during the same phone call. This runs contrary to the advice that one should not "opt out" of spam, for fear of alerting the sender that it found a live target. But the law requires that objections be respected, subject to enhanced legal penalties, and pursuing "opt out" mechanisms as a result can be worthwhile. If possible, send a cease-and-desist letter. If the offending e-mails or spam continue, the letter is evidence in support of heightened damages in a future lawsuit.

Finally, if all else fails, consider taking legal action against the entity sending or sponsoring the spam. As discussed above, spam lawsuits and enforcement actions are increasingly prevalent, with multimillion dollar awards becoming a routine occurrence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.