The Tagged.com Spam Cases: New York and Texas Attorney General Actions Show the Effectiveness of States' Retained Powers to Regulate Spam
The enactment of the Federal CAN-SPAM Act preempted many State laws that attempted to prohibit marketers from sending mass commercial emails. However, CAN-SPAM did leave one key area of enforcement open to the states. The State may still enforce laws restricting commercial emails to the extent that such laws prohibit "falsity or deception." 15 U.S.C. § 7707(b)(1). However, this exception is proving about as narrow as the Grand Canyon.
The latest examples of State enforcement of spam are the actions by the New York and Texas Attorneys General against Tagged, Inc., which were both resolved in the past week. See Attorney General of New York, Internet Bureau, In the matter of: Tagged, Inc., Assurance of Discontinuance (Nov. 6, 2009), Texas v. Tagged, Inc., Travis County District Court, No. D-1-GV-09-002032, Agreed Final Judgment and Permanent Injunction (Nov 9, 2009).
Tagged, which was founded by serial Internet entrepreneur Greg Tseng, has been reported to be the third-largest social networking site in the world by Hitwise. While its market share traffic is still a fraction of that enjoyed by Facebook and MySpace, according to Hitwise, it is in a major growth phase, and has increased its share by 47% from September 2008 to September 2009. Id.
However, according to the statements made by the New York and Texas AG's, much of this growth was due to Tagged's deceptive marketing and spamming practices. These practices allegedly included the following:
• Tagged allegedly accessed the email address books of visitors, without clear and conspicuous disclosure that this was occurring, or obtaining permission. Tagged then used these contacts to initiate a campaign to sign up additional members.
• It sent invitation email messages to visitor contacts that falsely stated that a person who had signed up on Tagged had sent photos to the recipient that could be viewed on Tagged. According to the New York AG, "In reality . . . Tagged generated the email invitation automatically without regard to whether the person had ever uploaded photographs to Tagged.com or intended to share them with her contacts."
• Even though the invitation emails were generated by Tagged, Tagged inputted the name and email address of the person who had registered at Tagged in the "from" field of each email. If the registrant had uploaded a photo, the invitation emails also included this photo.
• The invitation message body included a box for the recipient to click "yes" or "no" in response to whether she wanted to view the photos. The message also said "Please respond or [name] may think you said no :(" -- despite the fact that the registrant had nothing to do with the sending of the invitation email. The purpose of this was to play on the emotions of the recipient, falsely suggesting that their friend's feelings might be hurt if they did not visit the Tagged site and view the photos.
According to the New York AG, in an initial six week test campaign that used these techniques, conducted in Spring 2009, Tagged sent out over 20 million invitation emails. The response rate was so high that Tagged repeated the campaign, and sent out an additional 21 million invitation emails in just a four day period between June 3 and 7, 2009.
The New York AG claimed that Tagged's practices violated a series of New York statutes. These included New York General Business Law Sections 349-350 and New York Civil Rights Law Section 50. NY General Business Law Section 349 is New York's deceptive trade practices law and prohibits "deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state." Section 350 is New York's false advertising statute and prohibits "false advertising in the conduct of any business, trade or commerce in the furnishing of any service in this state." NY Civil Rights Law § 50 provides that "a person, firm or corporation that uses for advertising purposes, or for the purposes of trade, the name, portrait or picture of any living person, without having first obtained the written consent of such person . . . is guilty of a misdemeanor."
Such statutes would not be preempted by CAN-SPAM. The New York deceptive trade practices and false advertising statutes would seem to fall squarely within the "falsity and deception" exception to CAN-SPAM. Both of these statutes, as well as the New York misappropriation of name or likeness statute, would also seem to fit within a second exception to CAN-SPAM preemption -- "State laws that not specific to electronic email" -- 15 U.S.C. § 7707(b)(2). New York's prohibitions on deceptive practices and misappropriation of name or likeness would apply to any type of media, not just email.
In any event, we will never know whether these statutes would have applied to Tagged's practices, because Tagged has agreed to settle both cases for fines and agreements to change its business practices. However, the settlements are somewhat different in scope.
For the Texas action, Tagged agree to pay a $250,000 fine and consent to a permanent injunction that prohibits it from: (i) requiring a consumer to provide access to his/her email address book (e.g., his/her Outlook "Contacts") as a prerequisite for obtaining Tagged services, (ii) accessing a consumer's email address book without "clear and conspicuous disclosure" and "express verifiable consent", (iii) sending email addresses to contacts in a consumer's email address book without his/her clear and conspicuous disclosure and express verifiable consent, (iv) misrepresenting the author, source, sender or content of any electronic communication, and (v) failing to provide users with an option to keep their profiles private. The Texas settlement also includes a number of enforcement provisions and a requirement that Tagged make it easy for users to cancel their accounts.
The New York "Discontinuance Agreement" -- under which the New York AG simply agreed to cease further enforcement action -- required Tagged to pay $500,000 in "penalties and costs." Tagged also agreed to "cease and desist" provisions that largely track, but seem less onerous than, the prohibitions in the Texas settlement. For example, the New York settlement does not contain a provision restraining Tagged from requiring a customer to provide access to his/her address book as a requirement to obtain Tagged's services.
If you have any questions about how federal or state laws would affect an email marketing campaign, feel free to contact me.
David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.
