October 06, 2010
Tip for Clean Living: Don't Use a 14 Year Old's Self-Portrait in Advertising for Porn--Lara Jade Coton v. TVX
By Eric Goldman
Coton v. Televised Visual X-ography, Inc., 2010 WL 3768039 (M.D. Fla. Sept. 16, 2010). The initial complaint. Lara Jade's blog post on the court victory. Comprehensive recap from Plagiarism Today, who has been tracking the case all along.
Lara Jade Coton is a precocious photography talent. When she was 14, she took a self-portrait photo dressed up in a top hat and black strapless dress. The photo has no nudity and really isn't all that salacious. Coton posted the photo to a website called deviantArt, which describes itself as "the largest online social network for artists and art enthusiasts." Her account page.
The case involves a pornographic film "Body Magic," redistributed by TVX/Burge. The IMDB page. A contractor, Cohen, copied the photo from deviantArt to use in Body Magic's marketing collateral, including on the DVD package's cover and as the image on the disc itself.
Obviously, this was a poorly considered decision. First, this decision appears to reflect the misapprehension that any photos on the Internet are free to reuse. Second, the decision appears to ignore the overlaps between copyright and publicity rights. We've seen this issue arise from time to time with Flickr photos and Creative Commons licenses; even if a Flickr photo can be freely republished due to a permissive CC license, the photo can't be used for advertising purposes if a person is identifiably depicted in the photo without obtaining that person's publicity consent. As part of our forthcoming casebook on Advertising and Marketing Law, I took a deeper look at publicity rights in advertising and the case law is horrible for defendants--courts adopt very broad views of what constitutes advertising and identifiability in the advertising even when faces aren't shown. Every principal case we've included in the draft chapter is a defendant loss. Basically, if you're going to show or reference people in advertising, you need their permission.
After Coton discovered that her photo was being used, Coton contacted Burge and entered an email exchange rife with grammar and spelling errors. In one email, Burge replied:
Not only will you not be compensated for your photo we have turned this problem over to our attorney it seems the company my graphic company got the photo from on the internet is a public domain operation. You knew this when you originally sent us your scheming letter. Nice try toots.
Bonus tip for clean living: don't use the word "toots" in any responses to cease-and-desist letters.
After promising to remove Coton's photo, Burge further replied:
I'M SURE BY THE END OF THE MONTH YOUR FACE WILL BE HIS TORY. WE HAVS TOPPED SELLING THE DVD UNTIL COVER IS REPLACED. WE HAVE FURTHER CHECKED OUT YOUR NAME AND ITS NOT LIKE IT'S A HOUSE WHOLE NAME. ACTUALLY, REMOVING YOUR IMAGE WILL HELP IMPROVE THE SELL OF THE DVD ..... SO FAR IT BOMBED.
In retrospect, it is awkward for the film distributor to blame a 14 year old for not selling more copies of a pornographic video.
Coton sued a number of parties; all of them settled except for TVX/Burge, who defaulted on liability but contested damages. At issue were damages for three successful claims: direct copyright infringement, statutory misappropriation of her image, and defamation by implication.
Copyright Infringement. Coton didn't have a timely registration to qualify for statutory damages or attorney's fees. Without those, the damages are pretty low. As a professional photographer, the court accepts her asserted licensing fee of ~$3k. With low sales and a low retail price, the distributor's profits are ~$1k, for a total copyright damages award of a little over $4k.
As we've discussed so many times before (see, e.g., this post), timely copyright registration can mean the difference between a big payday and an uneconomic case. If Coton had made the timely registration, she would have likely gotten a larger damages award than $4k, and this court probably would have awarded attorneys fees of many tens of thousands of dollars.
(Note: at the time she posted the photo to deviantArt, she was an amateur photographer in Britain, so it's not surprising she didn't make a timely copyright registration. I'm sure she registers her photos early and often now).
The court rejects her claims for contributory copyright infringement for the distributor's liability for the retailers' activity, both because the distributor didn't know it was infringing the photo and because a separate damages award for contributory infringement would be double-counting.
Florida Publicity Rights (a/k/a "misappropriation"). The court denied Coton's statutory damages request for the misappropriation, treating it as a double-recovery with the copyright license award. To me, this seems like a clear error. Typically, a photo used in advertising will require separate copyright license and publicity rights license fees. In this case, it just so happened that Coton was both the photographer and the photo subject, but that shouldn't affect the respective license fees. However, Coton requested only $770, so the court's apparent error isn't a big financial deal.
The court accepts Coton's request for $25k compensatory damages for reputational harm but rejects the request for punitive damages because TVX/Burge didn't know of the misappropriation (Cohen made the error) and remediated it quickly following notice. The court also rejects any separate damages under common law misappropriation (not preempted by Florida statutory law; see the Almeida case) as double-dipping with the statute-based damages.
Defamation by Implication. Coton argued that using her self-portrait on a porn DVD false implied her participation in or support of the porn industry. The court accepts Coton's request for $100k compensatory damages "for the humiliation and mental anguish caused by the defendants' defamatory use of her self-portrait" but denies punitive damages for the same reason it denied punitive damages for misappropriation.
Net Effect. Coton won this ruling, but I would characterize it as a small win, not a big one. She had so many factors in her favor: copyright infringement, defaults by defendants, sloppy business practices by the defendants and the overall unsavoriness of the tort (associating a 14 year old with porn). At the case outset, if I knew Coton was going to win on liability, I would have estimated a higher case value than $130k. (I presume she got cash from some of her settlements, so the total payday is likely more). Factoring in attorneys' fees and the fact she will still have to work hard to get the defendants to pay the judgment, this result isn't very lucrative for her or her attorney.
From the defendants' perspective, they probably feel a little relief being on the hook for "only" $130k. Nevertheless, it's an expensive penalty for their sloppiness. The defendants sold less than 200 disks, so they are paying nearly $700 per disk. Worse, all of this was completely avoidable through industry standard rights clearance procedures. It's especially surprising to see a mistake like this by a porn company, who should already be accustomed to processing 18 USC 2257 model releases.
This case reinforces some lessons I think we already knew:
* copyright owners who want sizable damages need a timely copyright registrations
* just because a photo is available on the Internet--even on a site that represents itself as a collection of public domain images--does not mean it's free to use as a copyright matter
* even if the proper copyright license is obtained, a separate publicity rights license/consent is required for using the photo in advertising. Watch out for being lulled into complacency by favorable Creative Commons licenses, which only address the copyrights and not the publicity rights.
* verify the age of all models used in porn ads if they aren't the actors in the film. Even if not legally required to use overage models, nothing good can come from showing an under-age model in an advertisement for porn.
* don't use the phrase "toots" in business correspondence (or, really, ever).
Lara Jade's blog post adds two tips for photographers: "Remember to be wise about where you upload your images [and] the size you upload them."
Posted by Eric at 01:22 PM Permalink | Copyright | TrackBack (0) | Printable Version
October 05, 2010
New Internet Law Work-in-Progress Series
By Eric Goldman
Announcing a New Internet Law Works-in-Progress Series and Call for Participation
The High Tech Law Institute at Santa Clara University School of Law and the Institute for Information Law and Policy at New York Law School are pleased to announce a new annual works-in-progress series for Internet Law scholarship. The inaugural event will be held at Santa Clara University on March 5, 2011. Thereafter, the event will rotate between NYLS and SCU each Spring semester.
Why Another Work-in-Progress Series?
As Internet Law scholars, many of us already have numerous venues to present our works-in-progress. However, although many existing works-in-progress events have accommodated our scholarship in the past, none of them expressly cater to Internet Law scholarship. For example, in August the Intellectual Property Scholars Conference (IPSC) at Berkeley cut the Internet Law papers to manage their capacity constraints. It made complete sense for an IP-oriented works-in-progress series to turn down non-IP Internet Law scholarship, but it also highlighted that we as Internet Law scholars need our own dedicated venue to meet, socialize with and learn from each other as a community. We hope this new series will serve that purpose.
Call for Participation
Topically, we take a broad view of what constitutes “Internet Law” scholarship, and we welcome all types of scholarly approaches (doctrinal, theoretical, empirical, etc.). We offer three ways to participate in the event:
Papers-in-Progress Presentation for paper drafts sufficiently advanced to share with event attendees. We anticipate giving extra speaking time to these presentations. To qualify for these slots, you will need to upload a paper draft no later than February 21, 2011. If we have to prioritize presentation requests based on capacity constraints, we plan to give greater priority to papers earlier in the drafting process that will most benefit from peer feedback, i.e., (a) papers that have not been circulated to publication venues will get higher priority than (b) papers that have been circulated to publication venues but do not yet have a publication commitment, which will get higher priority than (c) papers that have been accepted for publication.
Projects-in-Progress Presentation for research projects without a paper draft for attendees to review in advance. This might occur because your paper draft isn’t ready to share (or does not arrive before the Feb. 21 cutoff) or because you would like to explore a paper idea before writing a draft. We intend to allocate less speaking time for these presentations than for papers-in-progress presentations.
Discussant. Space permitting, we welcome other scholars to join the conversation as active audience participants.
How to Participate
If you would like to participate in the event, please email Eric Goldman (egoldman@gmail.com) no later than January 17, 2011. In your email, please (1) specify your desired form of participation (paper-in-progress, project-in-progress or discussant), (2) provide a short talk abstract (please, no more than 500 words), and (3) let us know the paper’s status (uncirculated, circulated or accepted for publication). We intend to confirm participation by February 1, 2011, but we will respond before then to early participation requests, so we encourage you to submit your request at your earliest convenience.
There is no event participation fee, but all participants are responsible for their own travel expenses. We will be announcing additional travel and hotel information soon. There are no publication obligations associated with presenting at the event.
Other Events of Interest
Immediately preceding the March 5 work-in-progress event are two other events of interest to Internet Law scholars. We encourage you to join us for one or both of these events.
On March 4, 2011, Santa Clara University is hosting a symposium entitled “47 U.S.C. § 230: a 15 Year Retrospective” to recognize the 15 year anniversary of the statute’s enactment. Featured speakers include former Representative Christopher Cox (one of the two named co-sponsors of the bill that evolved into the statute), Ninth Circuit Chief Judge Alex Kozinski, Ken Zeran (the plaintiff in the seminal 230 case Zeran v. America Online) and many more. The event is sponsored by the High Tech Law Institute at Santa Clara University School of Law, and co-sponsors include Harvard Law School’s Berkman Center, Stanford Law School’s Law, Science & Technology program, the Berkeley Center for Law & Technology, the New York Law School’s Institute for Information Law and Policy, the Congressional Internet Caucus Advisory Committee and the Electronic Frontier Foundation. For more on this event and to RSVP, see the event page. Work-in-progress participants get free admission to this symposium.
On March 3, 2011, the Stanford Technology Law Review will hold a symposium on current and emerging issues of secondary or intermediary liability on the Internet. Panels will explore these issues in the context of copyright, trademark, and aspects of privacy law. The event will take place at Stanford Law School, with more details to come soon. Please contact Symposium Chair Holley Horrell (hhorrell@stanford.edu) for more information.
For More Information
We will be posting more information about the work-in-progress event to our event web page.
Posted by Eric at 12:51 PM Permalink | General | TrackBack (0) | Printable Version
October 01, 2010
Seventh Circuit Tosses Beverly Stayart's False Endorsement Claims--Stayart v. Yahoo
By Eric Goldman
Stayart v. Yahoo! Inc., 2010 WL 3785147 (7th Cir. Sept. 30, 2010).
I have previously blogged about Beverly Stayart's lawsuits against Yahoo and Google for apparently sploggy (and possibly cloaked) objectionable search results delivered when she searched on her name. Whatever sympathy I might otherwise feel for her is overridden by the lawsuits' complete lack of merit.
Yesterday, the Seventh Circuit affirmed the dismissal of her false endorsement claims against Yahoo. My prior posts on the district court opinion and her initial complaint. The court efficiently points out that she has not made a use in commerce of her name sufficient to trigger Lanham Act protection, and therefore she lacks standing for a false endorsement claim.
Stayart argued that her humanitarian/charitable work satisfies the Lanham Act commerciality requirement. This is a nonsense argument that the court easily rejects: "While Stayart’s goals may be passionate and well-intentioned, they are not commercial. And the good name that a person garners in such altruistic feats is not what § 43 of the Lanham Act protects." The Lanham Act's false endorsement provisions are not a general purpose publicity right.
The district court cited two other reasons (beyond standing) to dismiss the case, including an analytically confused 47 USC 230 defense. The Seventh Circuit opinion did not address the 230 issue at all.
While this *should* be the end of Stayart's litigation, it probably won't be. She can refile her state law claims against Yahoo in state court. She also still has a pending lawsuit against Google.
An aside: It's been a busy Cyberlaw week at the Seventh Circuit, including uBID v. GoDaddy, Chicago v. Craigslist and now this opinion.
Posted by Eric at 01:02 PM Permalink | Derivative Liability , Publicity/Privacy Rights , Search Engines , Trademark | TrackBack (0) | Printable Version
September 30, 2010
StubHub Can't Beat Tax Collection Obligation Using 47 USC 230--Chicago v. StubHub
By Eric Goldman
City of Chicago, Ill. v. StubHub!, Inc., 2010 WL 3768072 (7th Cir. Sept. 29, 2010)
In my recent post about Milgram v. Orbitz, I wrote that "online tickets have become a major subfield of cyberlaw" and collected some of our blog posts on the topic. This is yet another case over online ticket sales, this time involving StubHub and reaching the 7th Circuit. I am amazed at how StubHub seems to be a bottomless well of litigation. What a litigation generation machine they've been.
This case involves Chicago's attempt to force StubHub to collect a ticket resale tax on its behalf. StubHub responded that if Chicago wants the tax revenue, it should take the matter up with StubHub's buyers and sellers. Apparently Chicago didn't like that answer, so it amended its laws to make it more explicit that StubHub should qualify as "reseller's agent" who must collect the Chicago tax on ticket resales.
StubHub responded that 47 USC 230 preempted this tax collection obligation. Judge Easterbrook does not respond well to this argument, although it does give him an excuse to reiterate his idiosyncratic view of 230 as articulated in Doe v. GTE and amplified in CLC v. Craigslist:
As earlier decisions in this circuit establish, subsection (c)(1) does not create an “immunity” of any kind....It limits who may be called the publisher of information that appears online. That might matter to liability for defamation, obscenity, or copyright infringement. But Chicago’s amusement tax does not depend on who “publishes” any information or is a “speaker”. Section 230(c) is irrelevant.
From my perspective, StubHub's 230 argument was a stretch, so I'm not surprised it failed. However, Easterbrook's reason for deeming it unsuccessful (230(c)(1) isn't an immunity) is quirky.
The court is kinder to another StubHub defense that Illinois' state tax obligations preempt Chicago's tax obligations. The panel certifies that issue to the Illinois Supreme Court for a ruling.
Posted by Eric at 05:05 PM Permalink | Derivative Liability | TrackBack (0) | Printable Version
September 29, 2010
Deleted Facebook and MySpace Posts Are Discoverable--Romano v. Steelcase
By Eric Goldman, with additional comments from Venkat
Romano v. Steelcase Inc., 2010 WL 3703242 (N.Y. Sup. Ct. Sept. 21, 2010).
On my personal blog, I have repeatedly blogged about plaintiffs who tell one story in court only to have that story undone by their postings to social networking sites. See, e.g., Sedie v. US, People v. Franco (despite the tragedy, my personal favorite) and Embry v. State.
This case is in the same vein. Romano claims that she is largely bedridden/housebound, but her public Facebook pictures show her apparently enjoying herself away from home. The defense requests access to her non-public posts on Facebook and MySpace, which the judge grants.
The short opinion focuses on the defense's ability to access the private posts, but the actual order covers both current as well as deleted material. Specifically, the court orders "Defendant STEELCASE's motion for an Order granting said Defendant access to Plaintiff's current and historical Facebook and MySpace pages and accounts, including all deleted pages and related information, is hereby granted in all respects." The court didn't discuss the deleted material separately in its analysis, but this seems like a gotcha. Once a person posts material to Facebook or MySpace, there may not be a meaningful "undo"--even deleting it does not eliminate the material as future discoverable evidence for the duration of Facebook's and MySpace's retention periods.
[This raises the related Q of how long the sites archive deleted material. Facebook's privacy policy had the opaque statement "Removed and deleted information may persist in backup copies for up to 90 days, but will not be available to others." Putting aside the ambiguity of not being available to others--an untrue statement given the subsequent privacy policy statement about cooperating with legal requests--I couldn't tell if this was the retention policy. So, if I delete a photo from Facebook on day 1, does this statement mean that the photo will become undiscoverable by day 91?]
[UPDATE: I had a few conversations with Facebook and my understanding is that deleted photos indeed would be unavailable for discovery within 90 days in many cases and perhaps substantially less time. Other content items are more complicated, but overall Facebook does not retain complete copies of "everything" indefinitely.]
This case only tells us what we already knew--never post anything online that will be inconsistent with the story you're planning to tell others. The inconsistent material can surface even if the post is made in a non-public venue and even if you delete it later. Unfortunately, this well-known "rule" appears to be about as teachable as the rules regarding making sex tapes.
Other comments on this ruling:
* Kashmir Hill, pointing out the seeming inconsistency of this ruling with the Crispin ruling from earlier this year. I do think it's conspicuous that the court seems to treat all material on Facebook as equally discoverable, even though some material might be governed as private communications under the ECPA and other material clearly wouldn't be. An apropos academic article worth checking out: Lior Strahilevitz, A Social Networks Theory of Privacy (2004).
* Evan Brown
* Mike Masnick
* Bruce Boyden
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Venkat's comments: I don't know when people will learn the "never post anything online that will be inconsistent with the story you're planning to tell others" lesson. Perhaps a public awareness campaign is in order? People also tend to be surprised that, absent a specific privilege, personal communications, recollections, notes, and even a party's diary are discoverable in a civil lawsuit. In fact, this evidence often tells the most accurate version of the story from the person's perspective.
The wrinkle is the federal statute prohibiting the disclosure of private electronic communications such as emails, and on this basis, at least one court has ruled that the social networking site should not turn over private Facebook or MySpace messages to a party who issues a subpoena. ("Facebook Messages/Wall Posts, Civil Discovery, and the Stored Communications Act -- Crispin v. Audigier.") But this does not mean that the party seeking the discovery is not entitled to the relevant information. It just means that it should not be turned over by the social networking site absent a waiver or consent, and there is nothing to stop a court from requiring you to consent in order to proceed with your claims. I can't see any universe in which you can bring a lawsuit alleging emotional damages or that an injury affected your lifestyle, and then claim your Facebook or MySpace postings are off limits. (I think it's worth being clear about the different types of postings as well: there are truly private messages (which are similar to emails) and there are postings for your "friends," which are quasi-public anyway. All of this should potentially be discoverable.)
This scenario presents an awkward logistical issue. Steelcase is entitled to postings from the plaintiff's Facebook and MySpace pages, but does this mean that Steelcase can just rummage around in the plaintiff's accounts? This seems invasive. It allows Steelcase to make the decision of what is and is not relevant and, in the process, get access to potentially sensitive and private information that is not relevant to the lawsuit in any way. I suppose the judge could offer to become Facebook friends with the litigants, but this seems clunky at best. ("Judge Offers to Facebook 'Friend' Witnesses in Order to Resolve Discovery Dispute -- Barnes v. CUS Nashville.") Other alternatives are to have a neutral third party view the material and decide what is relevant (this is expensive) or to require Facebook to provide a log of account activity (doesn't necessarily work with pictures).
I'm not a big fan of courts citing to a bunch of company-drafted policies and concluding that Facebook and MySpace posts should be disclosed because no one expects them to be private anyway. Information that is stored in social networks can be used by several different parties, including law enforcement, the social network itself, and an outsider seeking information in the context of a civil lawsuit. To say that there is no expectation of privacy in your postings obscures the fact that these parties can access the information in different ways and subject to different restrictions. Does the court's take on the privacy expectations of Facebook and MySpace users mean that law enforcement can freely access your private Facebook posts? This doesn't seem like a tenable conclusion.
Finally, the fact that the court allowed access to certain deleted posts is interesting. I'm sure parties often receive advice to delete their accounts. Setting aside spoliation of evidence issues, as a practical matter, this may just not be an effective way to delete the material you want deleted.
Posted by Eric at 08:46 AM Permalink | Privacy/Security | TrackBack (0) | Printable Version
September 28, 2010
Washington Anti-Online Gambling Law Survives Dormant Commerce Clause Challenge -- Rousso v. State
[Post by Venkat, with brief comments from Eric]
Rousso v. Washington, Case No. 8040-1 (Wash. S.Ct. Sept. 23, 2010)
Professor Goldman blogged recently about a case from the Washington state Supreme Court interpreting the state's online gambling laws: "P2P Gambling Site is Illegal Bookmaker." The same court just issued an opinion rejecting a dormant commerce clause challenge to Washington state's online gambling laws.
Lee Rousso, an online poker aficionado and Washington state resident, brought a declaratory judgment lawsuit seeking a declaration that Washington's online gambling statute violates the dormant commerce clause. The trial court and the court of appeals rejected this challenge, and the Washington Supreme Court affirmed.
No delegation of authority
The court first noted that existing federal laws regulating online gambling did not delegate to the states authority to regulate online gambling. The court rejected the State's argument that the Unlawful Internet Gambling Enforcement Act of 2006 and the Wire Act contained language from which the court could find that Congress delegated the matter to the states.
Court finds that the statute does not discriminate
The court next applied the traditional discrimination test to determine whether the Washington law discriminated in language or effect against out-of-state commerce. The language of the statute was not discriminatory - "it equally prohibits internet gambling regardless of whether the person or entity hosting the game is located in Washington, another state, or another country." The court could not find any discriminatory effect on interstate commerce, since the statute prohibits internet gambling "evenhandedly, regardless of whether the company running the web site is located in or outside the state of Washington." Rousso argued that in reality, since there were no Washington-based internet gambling sites, the effect of the ban was to favor in-state brick and mortar gambling services. Citing CTS Corp v. Dynamics Corp, 481 U.S. 69, 87-88 (1987), the court rejected this argument.
Rousso also argued direct discrimination because banning internet gambling will "have a secondary effect of promoting in-state, Internet gambling substitutes . . . ." The court rejects this argument as well, noting that internet gambling and brick and mortar gambling are "two different activities, presenting risks and concerns of a different nature . . . ." According to the court, purchasing substitute goods and services (whether that is brick and mortar gambling or "buying more snacks for an in-person poker game among friends") is not a direct discriminatory effect.
The burden is not "clearly" excessive in relation to the local benefit
Finding no overt discrimination, the court engaged in commerce clause balancing and asked whether there is a legitimate state purpose for the ban, and whether the burden imposed as a result of the ban is "clearly excessive" in relation to the local benefit. Interestingly, the court credits the State's arguments regarding the State's interest in regulating online gambling on the basis that online gambling (as opposed to in-person gambling) presents unique harms:
Internet gambling introduces new ways to exacerbate [the same threats to health and welfare as off-line gambling] . . . . Gambling addicts and underage gamblers have greater accessibility to on-line gambling--able to gamble from their homes immediately and on demand, at any time, on any day, unhindered by in-person regulatory measures. Concerns over ties to organized crime and money laundering are exacerbated where on-line gambling operations are not physically present in-state to be inspected for regulatory compliance. Washington has a legitimate and substantial state interest in addressing the effects of Internet gambling.
The court found that the burden on interstate commerce is "comparable" to the substantial state interest in protecting health, welfare, safety, and morals.
Regulation vs. an outright ban
Rousso argues that the State had a less restrictive alternative to address these concerns: regulating (rather than banning) internet gambling. The court again recited the "unique dangers and pitfalls" presented by online gambling, and concluded that it wasn't clear regulation could adequately address these issues, and in any event, it wasn't up to the court to second guess the legislature's decision to ban, rather than regulate, online gambling. The court further noted that regulating online gambling would be "an interstate-commerce burdening nightmare." [It wasn't clear to me that an outright ban presents less of a burden than regulation.] Regulation would require Washington to inject itself into the universe of non-Washington (and off-shore) online gambling entities, and "foreign operations would need to be reorganized in conformity to Washington regulations. . . . When a foreign operation failed to conform, all Washington commerce on that web site would be precluded."
__
I wasn't sold on the Court's conclusion. The Washington Supreme Court previously rejected a dormant commerce clause challenge to Washington state spam laws (See State v. Heckel, 24 P.3d 404, 406 (Wash. 2001)), but as the court of appeals noted, Heckel differs from this case since the law here applies to "passive" websites. Also, Washington's spam statute (like most others) also contains a geographic limitation. In fact, I may be missing something pretty basic, but I don't see an express geographic limitation in the statute. RCW 9.46.240 states:
Whoever knowingly transmits or receives gambling information by telephone, telegraph, radio, semaphore, the internet, a telecommunications transmission system, or similar means, or knowingly installs or maintains equipment for the transmission or receipt of gambling information shall be guilty of a class C felony . . . . However, this section shall not apply to such information transmitted or received . . . relating to activities authorized by this chapter . . . .
Not only does the statute not contain an express geographic limitation, it also exempts the identical conduct when engaged in by brick and mortar retailers. As I read the statute I wonder whether it allows gambling establishments that are authorized in the State of Washington to conduct operations on the internet? I think the State's argument breaks down here, because entities that are authorized (i.e., regulated) can engage in the conduct, but 100% of them will be in the state.
It was also interesting that the court so quickly and easily concluded that a ban did not affect out-of-state and foreign businesses because of their ability to screen customers geographically:
those businesses can easily exclude Washingtonians. If an individual during registration marks his or her location as the state of Washington, the gambling web site can end the registration there.
The court of appeals also mentions this ease with which an online business can exclude a resident from a particular state, but neither the court of appeals nor the Washington State Supreme Court cite much evidence for this proposition. (Here's a pdf link to the opinion: Rousso v. State, which discusses American Libraries Ass'n. v. Pataki, 969 F.Supp. 160 (S.D.N.Y.1997), and other decisions that came after it.)
The fact that this is a criminal statute dealing with the transmission of information makes this problematic. Would an out of state business violate the statute because a patron happen to use the service without disclosing that the patron was a Washington resident? The statute does not provide a simple answer to this.
I think this case is much tougher than the court gives it credit for being. It's worth noting that Justice Sanders, who authored the opinion, is well known for his libertarian leanings.
I also think the statute raises First Amendment concerns, but a quick online search did not turn up any challenges to the statute on this basis.
Related:
"State Efforts to Regulate the Internet" (Cyberlaw Cases) (discussing court of appeals opinion)
"Washington State Supreme Court Upholds Internet Gambling Law" (PokerNewsDaily) (discussing Rousso)
"No On-line Gambling for You, Minnesotans" (Info/Law) (discussing 2009 effort by Minnesota to impose filtering on ISPs)
______
Eric's comments: I continue to believe that any state regulation of the Internet presumptively violates the dormant commerce clause, especially when the statute does not contain any geographic limitations in its express terms.
It's true that a gambling website can block a state's residents if the site asks the user to report the geography and if the user accurately self-reports. However, a state law requiring websites to ask users to self-report geography governs conduct wholly outside the state because websites located outside the state who serve non-state residents would still have to comply. This extraterritorial reach, in turn, makes the law presumptively violative of the DCC, negating the applicability of the Pike balancing test. So from my perspective the court badly whiffed this ruling.
For my other ruminations on the problems with states regulating the Internet, see Geolocation and A Bordered Cyberspace (Nov. 2007).
______
UPDATE: John Ottaviani sent the following:
After rereading a number of dormant Commerce Clause Internet cases, I just come down on the side that the Internet is an inherently interstate entity, incapable of regulation by the states, as did the courts in Pataki and Dean (Am. Libraries Ass'n v. Pataki, 969 F. Supp. 160 (S.D.N.Y 1997); Am. Booksellers Found. v. Dean, 342 F.3d 96 (2d. Cir. 2003)). So I never get to the Pike balancing test. Even on the Pike balancing test, the Washington court gives short shrift to its treatment of the burden on interstate commerce, and is overly glib in its assertion that the websites can simply block the Washington users by refusing to register users with a Washington zip code. One of the reasons state lotteries and other "legal" forms of gambling have not proliferated on the Internet in the United States is the fear of criminal prosecution due to the inability to restrict users by geographic location to the degree felt necessary to avoid criminal prosecution. Users can lie about their address, or can be using service providers located in a different state than the user. The problem is exacerbated now with the proliferation of mobile devices, as users are no longer even tied to a particular fixed location. If a Washington resident is gambling on his Blackberry while on vacation in San Francisco, is that considered a violation of the Washington statute? What if the user lies and provides a California address and zip code?
The Rousso decision is consistent with the Washington court's decision in State v. Heckel, 24 P.3d 404 (Wash. 2001), where the Washington court rejected a dormant commerce cause challenge to its anti-spam law (prior to the enactment of the federal CAN-SPAM law). In Heckel, the court also gave a cursory treatment to the burden on interstate commerce, finding the only burden was the burden for spammers to refrain from deception, which the court found did not burden interstate commerce at all.
I'm not sure how the case would come out if the Supreme Court accepts a cert petition. Scalia is on record as not liking the Pike balancing test.
Posted by Venkat at 09:57 AM Permalink | E-Commerce | Printable Version
September 26, 2010
New York Court Dismisses Putative Class Action Brought Under California Spam Statute -- Bank v. Hydra Group, LLC
[Post by Venkat]
Bank v.Hydra Group LLC, 10-CV-1770 (JG) (E.D.N.Y. Sept. 24, 2010)
Todd Bank brought a putative spam class action against Hydra Group. The court dismissed the lawsuit for lack of subject matter jurisdiction.
Bank alleged that he received three pieces of spam:
[the] subject lines all contained the phrase “ATTN: Your Auto Insurance Renewal Reminder,” but the bodies contained only advertisements for an auto insurance broker.
Claiming that his was one of a million pieces of spam sent out by defendant Hydra Group, Bank styles his lawsuit as a class action. (But see footnote 1 of the order, where Bank admits this number is based on his "'general knowledge' of the industry.") Hydra Group, which is headquartered in California, brought a motion to dismiss for lack of personal jurisdiction and for failure to state a claim. The court on its own motion raises the issue of subject matter jurisdiction, and dismisses the lawsuit for lack of subject matter jurisdiction.
Bank asserted the Class Action Fairness Act of 2005 (which requires the amount in controversy to exceed five million dollars) as the basis of subject matter jurisdiction. However, the statute he sued under had a cap of $1 million per “incident.” (Cal. Bus. & Prof. Code § 17529.5(b)(1)(B)(ii) (“A person or entity bringing an action . . . may recover . . . [l]iquidated damages of . . . up to one million dollars ($1,000,000) per incident.”).) The statute defines incident as “a single transmission or delivery to a single recipient or to multiple recipients of an unsolicited commercial e-mail advertisement containing substantially similar content.” Bank argued that the cap was a limit on the recovery per plaintiff and not an aggregate cap on a defendant's liability. The court disagreed:
First, if the liability-limiting provision is interpreted as Banks suggests it should be, it would rarely, if ever, limit a plaintiff’s recovery. A plaintiff would have to receive more than 1000 unsolicited messages of substantially similar content from the same defendant in a single transmission to trigger the provision. On the other hand, if the provision is read as a cap on a defendant’s per-incident liability, it would be triggered more frequently -- whenever a defendant sent more than a thousand messages of substantially similar content in a single transmission, whether the messages went to one recipient or many more.
Furthermore, the statute evinces an intent to limit a defendant’s liability even further if the defendant has made efforts to comply with it. In the case of a defendant that has “established and implemented, with due care, practices and procedures reasonably designed to effectively prevent unsolicited commercial e-mail advertisements that are in violation of this section,” the statute limits liquidated damages to $100,000 per incident. Id. § 17529.5(b)(2). This reduced cap would provide far less of a reward, and therefore far less of an incentive, for defendants to avoid sending spam if, instead of limiting a defendant’s total liability for each transmission, it merely limited the amount a defendant had to pay to each plaintiff. For this reason as well, the damages provision is best interpreted as a limit on total liability rather than individual recovery.
At first glance, this may seem like a harsh turn of events for a pro se plaintiff. However, Bank is far from the typical pro se plaintiff who is typically accorded some leeway by courts -- he is a lawyer. In a previous case, Bank (or someone who shares his name, including his middle initial) tried to assert a section 1983 claim in federal court based on a state court judge's denial of his request to wear jeans and a hat in court: "Lawyer Has No First Amendment Right to Wear Hat in Court, Federal Judge Decides."
Throwing out the dispute on subject matter (rather than personal jurisdiction) grounds, kicks the lawsuit out of the federal system. In the process, the court expresses some skepticism at Bank's claims for damages:
I have difficulty conceiving of a statutory provision, concededly intended to limit liability in at least some cases, that nevertheless fails to operate in this case -- thus permitting the recovery of $3 billion in damages for the receipt of misleadingly labeled insurance advertisements. The inartful drafting of the provision is no justification for such a bizarre result.
Added: In 2008, Bank suffered a loss in the Second Circuit, which affirmed the dismissal of his claims under the Telephone Consumer Protection Act: "2nd Circuit Rejects Lawsuit Over Unsolicited Fax Ads." (h/t @LearnedElbow)
Other cases involving subject line claims under California's spam statute:
Posted by Venkat at 10:21 AM Permalink | Spam | Printable Version
September 24, 2010
Availability of Client Data on LinkedIn, Facebook, and Google Sinks Trade Secrets Claim -- Sasqua Group v. Courtney
[Post by Venkat with a brief comment from Eric]
Sasqua Group, Inc. v. Courtney, 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010)
Background: Sasqua Group and its principal (Tors) ran a executive search consulting firm for professionals in the financial services industry. They work with "a small group of high-caliber clients, including . . Barclays Capital, The Royal Bank of Scotland, Nomura American Holding, Inc. . . . " In 2000, Sasqua took on Lori Courtney (Tors's niece) as a consultant. Sasqua claimed that Courtney ran the day-to-day affairs of Sasqua and lacked experience when she came to work for Sasqua. Courtney's version differed.
In 2008, Tors and Courtney negotiated but did not enter into a partnership agreement and continued to work together. [If this isn't a red flag for a dispute in the future, I'm not sure what is.] Courtney continued to work with Sasqua under a consulting agreement which was renewed annually. In 2009, despite the lack of a partnership agreement, Tors and Courtney started sharing profits and expenses of Sasqua. In early 2010, Courtney resigned from Sasqua and formed Artemis Consulting. Within the week, three Sasqua recruitment consultants advised Sasqua that they were leaving to work for Courtney at Artemis. Tors contacted Sasqua clients to let them know of Courtney's departure, and one of the clients (Standard Charter) told Tors that it already know what was going on. Predictably unhappy, Tors sued Courtney and Artemis. Sasqua asserted a variety of claims, but sought an injunction to prevent Courtney's communication with Sasqua's "client contacts" (i.e., particular individuals at companies who were in charge of hiring companies such as Sasqua and Artemis).
The Court's Decision: Since Sasqua did not have a non-competition or a non-solicitation agreement with Courtney, it was left to rely on a trade secrets claim based on its client list. This claim did not fare well.
The key issue the court focused on was whether the information sought to be protected as a trade secret was known outside the business or readily ascertainable. Courtney argued that the information Sasqua sought to protect was freely available, or available with little efforts through using sources such as LinkedIn, Facebook, and Google:
virtually all capital markets personnel have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases, including the firm's own media advertising.
Sasqua argued that it developed database software which kept track of client contacts and preferences. Unfortunately for Sasqua, Courtney was adept at finding information on the internet, and her in-court demonstration of how to find out information that Sasqua claimed was a trade secret seemed to have impressed the court:
Courtney . . . described a . . . process that she would utilize if she were approached by a foreign exchange trader who was looking for a position at Nomura and if she were starting from scratch. Going to Google first this time, Courtney typed in the phrase "global head of FX in Nomura." Approximately 72,400 hits came up, the first of which was entitled "Nomura Appoints Head of Fixed Income Research." . . . Courtney next went to Bloomberg.com . . . Doing a search on Bloomberg, Courtney was able to find the direct phone number for Gladwin at Nomura's offices in London, the London address itself and Gladwin's direct e-mail address. The Bloomberg site also allows the user to send an instant message to Gladwin . . . .
Courtney also explained how such a search could be conducted on LinkedIn, which she described as being "like Facebook but for business" and as being more searchable than Bloomberg "because people put their whole profile on LinkedIn."
The court also credits her testimony on the availability of contact information and professional details on the internet:
[i]t used to be years ago, that people were very protective about their resumes and personal information because no one ever wanted their employer to get wind that they were looking for another job . . . [now] everyone . . . puts it out there for the world to see because people want to be connected now. People want to know - - people want the recruiters knowing who they are and how to find your information and how to find them if they have a good opportunity.
Sasqua argued that although contact information for certain decision-makers may be readily ascertainable, things like the chain of command, placement preferences, and histories were not. The court held that Sasqua failed to put forth evidence in support of this. Additionally, the court sided with Courtney on the issue of whether Sasqua undertook reasonable measures to protect the secrecy of the alleged trade secrets. Courtney submitted a declaration from Sasqua's computer technician that Sasqua actually misappropriated the client list from its prior employer and that Sasqua was "extremely lax" in its efforts to safeguard the data.
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In the modern era where professional networking on the internet is the norm, things like client lists will become increasingly difficult to protect as trade secrets. If the information you are seeking to protect as a trade secret is available on the internet (and the defendant can access it with clean hands), you're going to have an uphill battle. (But see Hirel Connectors, Inc. v. United States, 2004 U.S. Dist. LEXIS 31036 (C.D. Cal. Jan. 23, 2004) ("This Court declines to hold that information that becomes publicly available on the Internet can never be a trade secret under California law.").) Also, as more information that may fall into the trade secrets category is in electronic form, efforts to protect its secrecy will be important. Allowing employees at the company to freely access information that a party later claims is a trade secret will put the party in an awkward position.
Additional coverage: 3 Geeks and a Law Blog ("Thanks to LinkedIn, Your Client Database May Not Be a Trade Secret").
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Eric's comment: This case reminds me a lot of the classic trade secret case Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202 (1978). In that case, Van Zeeland took in a young apprentice Sandas, taught him the business (in that case, booking bands at music venues) and then saw Sandas leave only to go into competition with his former mentor. As Sandas walked out the door, he grabbed a list of contacts at the various music venues. Ultimately the court concludes that the information wasn't protectable as a trade secret because it would be simple to recreate that list. This was back in the 1970s, when in fact it was comparatively hard to put together contact lists. In the digital age, where people and businesses publish detailed profiles implicitly describing what they are looking to buy and sell, it will become increasingly harder for many businesses to claim their contacts/customer lists as trade secrets.
Posted by Venkat at 10:24 AM Permalink | Trade Secrets | Printable Version
