Thursday, March 15, 2007

Business Could Be Liable for CAN-SPAM Violations of Promotional Affiliates

This posting was written by Bill Zale, editor of CCH Advertising Law Guide.

A subscription pornographic website operator could be vicariously liable for its promotional affiliates' alleged violations of the CAN-SPAM Act by sending unconsented-to sexually explicit commercial e-mails without warning labels, the federal district court in Tucson has ruled.

The court’s opinion raises questions as to whether—outside the pornography industry—a business can be held vicariously liable if its promotional affiliates violate the Act through commercial e-mail marketing

The court observed that the text of the statute plainly contemplated a situation where an entity or person would pay or otherwise induce another to send a violative e-mail such that a joint violation of the statute would occur. The statute stated specifically that more than one person might be considered to have “initiated” a particular message. The statutory text also made it clear that “procuring” would involve somehow inducing, either by money or otherwise, the initiation of the message, in the court’s view.

The statute was inapplicable to an accidental or mistaken violation, immediately attended to and corrected. But the website operator in the case at hand could not insulate itself from any liability for the actions of affiliates on its ultimate behalf and for its financial benefit purely by putting on blinders or inattention to monitoring and supervising the use of its sexually explicit materials, according to the court.

The website operator had a duty to oversee the use of those sexually explicit materials when distributed for promotion. Despite disclaimers, upon receipt of knowledge that affiliates were using their promotional literature in a violative manner, the website operator would incur a duty to act reasonably to stop that activity.

The pivotal issues were control over the affiliates and knowledge of their violations. Because a reasonable trier of fact could differ over whether or not the relationship between the website operator and its affiliates resulted in vicarious liability of the operator for statutory violations, the case could not be decided on summary judgment motions.

The decision, brought by the U.S. Department of Justice on behalf of the Federal Trade Commission, is U.S. v. Cyberheat, Inc. (D Ariz.), No. CV-05-457-TUC-DCB, March 2, 2007. The opinion will be reported in CCH Trade Regulation Reports and CCH Advertising Law Guide.

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