Federal Anti-Spam Statute to Trump State Law

The last update discussed California Senate Bill 186, a tough new anti-spam law that was to take effect in the new year. Marketers now are breathing a sigh of relief as the U.S. Congress, in early December, passed the “CAN-SPAM Act of 2003.” The federal law, which applies starting January 1, will preempt the California statute and the patchwork of other state laws regulating spam.

Overall, the new federal law paves the way for marketers to continue to use spam to pitch potential customers. Although marketers have only days to conform their practices with the new law, the requirements are not onerous. Most notably, the federal law permits unsolicited commercial e-mail in the absence of advance consent or any pre-existing business relationship, a door that that the California law would have closed.

Nooks and crannies aside, the key items in the federal law are as follows: (1) the sender cannot conceal his or her location or use deceptive subject headings; (2) the sender must identify each message as an advertisement or solicitation, notify recipients that they may opt out of receiving future messages, provide recipients with an e-mail address or internet-based mechanism to opt out, and supply a valid physical postal address; (3) the sender must cease sending spam within ten business days of receiving an opt out request and cannot sell e-mail addresses of those who opted out; (4) the sender must attach warning labels, to be defined by the Federal Trade Commission (FTC), to messages containing sexually oriented material; and (5) the FTC must report to Congress in six months on the feasibility of a national do not e-mail registry. The federal law may be enforced by the U.S. Government, state governments, and internet service providers, but probably not by disgruntled spam recipients.

Since three dozen states had taken divergent approaches in regulating e-mail marketing, the enactment of a single nationwide standard reduces regulatory clutter and facilitates compliance. Yet it is doubtful that the new law will diminish the flow of spam. The statute does not authorize additional funding for investigation or enforcement, allowing most unscrupulous marketers to continue business as usual. The proposed do not e-mail registry, which the FTC has yet to embrace, is of marginal utility since legitimate businesses typically both allow customers to decline spam when registering with a site and permit changes to e-mail preferences at a later date.

In reality, technology-based solutions, such as spam filters, will have a much greater impact on e-mail marketing than the new federal law.

When Does Puffing End and Deception Begin?

In early December, the California Court of Appeal in Los Angeles allowed a false advertising suit to proceed against Echostar Satellite Corporation. (Consumer Advocates v. Echostar Satellite Corp., 2003 DJDAR 13203.) The plaintiffs claimed that Echostar deceptively touted its satellite television service as providing “crystal clear digital” video and “CD quality” audio, but the court found that these claims were mere puffery, i.e., “boasts, all-but-meaningless superlatives.” On the other hand, the defendants’ claims regarding the number of channels and the ability to view the program schedule in advance were factual and thus had to be truthful. The court’s categorization of these claims shows the subjective nature of the analysis – other judges might have ruled that all the claims were sufficiently factual to serve as bases for the lawsuit. Also of significance, the court ruled that the plaintiffs need not produce a consumer survey or similar evidence to prevail on a claim that the public is likely to be misled by an ad. Rather, the falsity of claims “may be established by testing, scientific literature, or anecdotal evidence.”

California AG Sues Pearle Vision and Its Directors

The California Attorney General sued Pearle Vision, Inc. for allegedly violating a state law that prohibits opticians and eyeglass retailers from advertising optometric services. The trial court granted a preliminary injunction, but allowed Pearle to continue to advertise optometric services with disclaimers that the services were provided by an affiliated corporation. The California Court of Appeal, in November, found that the disclaimers may have made the ads “technically true,” but the overall message sent by the ads was misleading. (People v. Cole, 2003 DJDAR 12901.) This case illustrates the proposition that disclaimers cannot overcome primary messages in an ad – if the ad, viewed as a whole, is likely to mislead, a disclaimer will not fix the problem.

Corporate managers also should take note of this case because the Attorney General, in an unusual and aggressive move, sued both Pearle and its individual officers and directors, who resided in Ohio, even though the state had no evidence connecting them to Pearle’s advertising beyond their positions with the company. The appellate court rejected that effort, observing that the state had to demonstrate some activity by each individual officer/director (e.g., personal authorization or participation in the challenged advertising) that would subject him or her to personal liability and to the jurisdiction of California’s courts.

Lawsuit Filed to Enforce Do Not Call Registry
Despite challenges from the telemarketing industry, the National Do Not Call Registry took effect in October. Federal law now prohibits most telemarketing calls to the tens of millions of consumers who placed their residential and/or cellular telephone numbers on the Registry. In November, the California Attorney General filed suit in federal court in San Francisco against American Home Craft, a home improvement company. (People v. American Home Craft, Inc., No. C-03948.) The AG charged that American Home Craft unlawfully called numbers listed on the Registry, stating in a press release that the company had not purchased a copy of the Registry before engaging in telemarketing. This may be the first case enforcing the Registry. Telemarketers beware. Regulators are likely to file many more such lawsuits in 2004 and the penalties for missteps are stiff.

 

Advertising & Marketing Law Update is a publication of Downey Brand LLP