United States of America v. Impulse Media Group Inc

Filing 17

MOTION for Summary Judgment by Plaintiff United States of America. Noting Date 9/29/2006. (Attachments: # 1 Exhibit List# 2 Exhibit 1# 3 Exhibit 2# 4 Exhibit 3# 5 Exhibit 4# 6 Exhibit 5# 7 Exhibit 6# 8 Exhibit 7# 9 Exhibit 8# 10 Exhibit 9# 11 Exhibit 10# 12 Exhibit 16# 13 Exhibit 17# 14 Exhibit 18# 15 Exhibit 19# 16 Exhibit 20)(Hash, Lauren)

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United States of America v. Impulse Media Group Inc Doc. 17 Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 1 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE UNITED STATES OF AMERICA, Plaintiff, v. IMPULSE MEDIA GROUP, INC., a Washington corporation, Defendant. No. CV05-1285L UNITED STATES' MOTION and MEMORANDUM IN SUPPORT OF SUMMARY JUDGMENT NOTE ON MOTION CALENDAR: (September 29, 2006) I. Introduction Plaintiff United States of America ("United States") moves for summary judgment as to liability under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM" or "the Act"), 15 U.S.C. § 7701 et seq., and the Federal Trade Commission's Adult Labeling Rule (the "Adult Labeling Rule" or the "Rule"), 16 C.F.R. § 316, against Defendant Impulse Media Group, Inc. ("IMG"). IMG violated the law by initiating the transmission of hundreds of unsolicited commercial email messages ("spam") that contained sexually explicit material and lacked the required warnings, disclosures, and opt-out mechanisms. As a result, unsuspecting recipients around the country were bombarded with sexually explicit images in their in-boxes. Congress explicitly forbade the transmission of the email messages at issue in order to protect recipients of sexually explicit spam from viewing material that they may find offensive and to provide recipients of commercial spam an -1- Dockets.Justia.com Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 2 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 opportunity to opt-out from receiving further messages from the sender. There is no genuine dispute of the material facts that impose liability on IMG. IMG caused its "affiliates" to send the spam that is the subject of this motion. As discussed in Section VB, infra, IMG operated an affiliate program called "Soulcash." IMG provided its affiliates with marketing materials and support, paid affiliates for bringing subscribers to IMG as a part of its affiliate program, and induced affiliates to send email as a part of the Soulcash affiliate program. Further, the undisputed facts show that IMG affiliates promoted IMG's websites through unsolicited commercial email messages that contain sexually oriented material that violate CAN-SPAM and the Adult Labeling Rule. Congress recognized that there was often a distinction between firms that induce sexually explicit spam, like IMG, and entities that actually sent the spam, such as IMG's affiliates. The text, structure, and legislative history of the Act (see Sections IV and VI, infra) unequivocally demonstrate how Congress, motivated in large part by a desire to prevent pornographic email from being delivered to children, purposefully excluded a "knowledge" requirement from the pertinent provision of CAN-SPAM to expressly impose liability for injunctive relief on both those who induce the spam and the actual senders of spam. In doing so, Congress deliberately extended the scope of the statute to reach firms like IMG that induce and provide consideration to others to send sexually explicit email to non-consenting recipients. Thus, IMG is liable for injunctive relief. Even where Congress did impose a knowledge requirement as with civil penalties (see Section VII, infra), the undisputed evidence in this case demonstrates that IMG had actual and implied knowledge of its affiliates' unlawful practices and of CAN-SPAM. Therefore, IMG is liable not just for injunctive relief, but for civil penalties as well. The contours of any injunction and the amount of any civil penalty will be decided in later proceedings. Because there are no genuine issues of material fact in dispute as to whether IMG Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -2- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 3 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 violated CAN-SPAM and the Rule, summary judgment in favor of the United States should be granted. II. Statement of Undisputed Facts A. IMG 1. Since January 1, 2004, and continuing to the present, Defendant IMG has owned and operated dozens of commercial websites ("websites") that display a vast collection of sexually oriented videos and pictures. (IMG's Answer to the Amended Complaint at ¶ 6, Incorporated by Reference; Schermerhorn deposition, attached as Exhibit 9 at p. 8 lines 5-18 and p. 10 line 22 to p. 11 line 2). 2. Seth Schermerhorn is the President and sole owner of IMG. Seth Schermerhorn has owned IMG since he started the company in 2001. (Schermerhorn deposition, attached as Exhibit 9 at p. 9 line 9 to p. 10 line 9 and p. 10 line 22 to p. 11 line 2). 3. Seth Schermerhorn was identified by IMG as someone who designed the affiliate program, negotiates and signs contracts, terminates and reinstates affiliates, deals with complaints about affiliates, and monitors affiliates for compliance. (Response No. 1 to Interrogatory Requests, attached as Exhibit 4 at pp. 6-7). 4. Adam Welch was employed by IMG from May 2003 to November 2005 as a project manager. While employed at IMG, Adam Welch worked on the day-to-day operations of the company and served as an affiliate representative, providing assistance to affiliates. (Welch deposition, attached as Exhibit 7 at p. 8 line 17 to p. 10 line 12). 5. Adam Welch was identified by IMG as someone who dealt with complaints about affiliates and monitored affiliates for compliance. (Response No. 1 to Interrogatory Requests, attached as Exhibit 4 at pp. 6-7). 6. During his employment at IMG, Adam Welch had direct contact with IMG affiliates. (Schermerhorn deposition, attached as Exhibit 9 at p. 11 lines 21-24). 7. Josh Mackey has been employed at IMG since 2002. He has held the positions of Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -3- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 4 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 photographer and graphic designer. Josh Mackey is responsible for creating and designing IMG's websites. (Mackey deposition, attached as Exhibit 8 at p. 15 line 20 to p. 16 line 6 and p. 16 line 24 to p. 17 line 24). 8. While employed at IMG, Josh Mackey has had direct contact with IMG affiliates. (Schermerhorn deposition, attached as Exhibit 9 at p. 11 lines 21-24). B. The IMG Affiliate Program 9. To fully access IMG's websites, individuals must subscribe and pay membership fees. (Schermerhorn deposition, attached as Exhibit 9 at p. 8 lines 13-18 and p. 26 lines 8-16). 10. To attract members/subscribers to its websites, IMG runs an affiliate program called Soulcash. Affiliates of the Soulcash program advertise IMG's websites. Affiliates earn money each time they refer a customer who subscribes to one of IMG's adult websites. (IMG's Answer to the Amended Complaint at ¶ 6, Incorporated by Reference; Mackey deposition, attached as Exhibit 8 at p. 30 lines 23-25; Schermerhorn deposition, attached as Exhibit 9 at p. 8 line 19 to p. 9 line 3 and p. 21 lines 14-17). 11. To become an affiliate of IMG, an applicant need only complete IMG's on-line affiliate application and provide an email address. "There is no process employed [by IMG] to evaluate a prospective affiliate. As long as the prospective affiliate agrees to the SOULCASH PROGRAM AGREEMENT and validates his email, he is entitled to participate." (Response No. 2 to Interrogatory Requests, attached as Exhibit 4 at p. 8; Mackey deposition, attached as Exhibit 8 at p. 34 lines 5-18; Schermerhorn deposition, attached as Exhibit 9 at p. 14 line 23 to p. 15 line 9; Welch deposition, attached as Exhibit 7 at p. 32 line 11 to p. 33 line 25). 12. IMG does not interview affiliate applicants as a part of the affiliate sign-up process. (Schermerhorn deposition, attached as Exhibit 9 at p. 15 lines 18-20). 13. IMG does not ask affiliate applicants for references as a part of the affiliate sign-up process. (Schermerhorn deposition, attached as Exhibit 9 at p. 15 lines 21-23). 14. IMG approved an affiliate applicant who provided the following information during Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -4- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 5 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the sign-up process: first name "hjgjhgj;" last name "not provided;" street address "gjhgjghj gjhgj;" city "ghjhgj;" state "ghjhgj;" country "ghjhgj;" email address "gjhgjhgj@Jjhgjhg.com." IMG also approved affiliate applicants who provided the names "ccc xzc" and "sfdsfd dsfsdfsd." (Excerpts from Response No. 4 to Document Requests - Affiliate Database, attached as Sealed Exhibit 13). 15. IMG assigns each affiliate a unique user identification ("user ID") consisting of characters chosen by the affiliate during the affiliate sign-up process. (IMG's Answer to the Amended Complaint at ¶ 7, Incorporated by Reference; Response No. 6 to Interrogatory Requests, attached as Exhibit 4 at pp. 11-12; Mackey deposition, attached as Exhibit 8 at p. 43 lines 2-8; Schermerhorn deposition, attached as Exhibit 9 at p. 22 lines 11-14). 16. Some individuals have more than one affiliate account, with each account receiving its own affiliate user ID. (Schermerhorn deposition, attached as Exhibit 9 at p. 22 lines 3-10). 17. IMG uses codes containing the affiliate's user ID to track subscriber sales and clicks referred by affiliates and to determine which affiliates to pay for subscribers and sales brought to IMG's websites. (IMG's Answer to the Amended Complaint at ¶ 7, Incorporated by Reference; Response No. 6 to Interrogatory Requests, attached as Exhibit 4 at pp. 11-12; Mackey deposition, attached as Exhibit 8 at p. 42 line 17 to p. 43 line 1). 18. IMG provides its affiliates with marketing and promotional tools -- including content, pictures, and video -- to advertise IMG's websites. Many of these items contain sexually explicit material. (Response No. 11 to Document Requests - Hosted Full Page Ads, attached as Exhibit 16; Response No. 11 to Document Requests - Hosted Half Page Ads, attached as Exhibit 17; Response No. 11 to Document Requests - Movies of the Day, attached as Exhibit 18; Mackey deposition, attached as Exhibit 8 at p. 25 line 15 to p. 26 line 2 and p. 37 lines 15-24; Welch deposition, attached as Exhibit 7 at p. 34 line 19 to p. 36 line 15; Schermerhorn deposition, attached as Exhibit 9 at p. 16 lines 4-12). 19. Specifically, IMG provides the following to affiliates for marketing purposes: hosted Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -5- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 6 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 galleries, downloadable galleries, banners, pictures of the day, movies of the day, and interstitials. (Response No. 7 to Interrogatory Requests, attached as Exhibit 4 at p. 13). 20. IMG provides these marketing and promotional tools to affiliates to "give the affiliate a means to drive new . . . prospective website members to our sites." (Schermerhorn deposition, attached as Exhibit 9 at p. 17 lines 17-24). 21. The marketing and promotional tools provided to affiliates generally have hyperlinks embedded in the graphics to direct potential subscribers to IMG's websites. (Mackey deposition, attached as Exhibit 8 at p. 62 line 19 to p. 63 line 21). 22. It is technically feasible for affiliates to use in emails many of the promotional tools containing content, pictures, and videos provided by IMG to promote IMG's websites. (Mackey deposition, attached as Exhibit 8 at p. 37 line 25 to p. 38 line 7; Schermerhorn deposition, attached as Exhibit 9 at p. 17 line 17 to p. 18 line 13 and p. 53 line 21 to p. 55 line 13; Welch deposition, attached as Exhibit 7 at p. 36 lines 16-23 and p. 61 line 18 to p. 68 line 2). 23. IMG provides detailed sales statistics to affiliates including number of sales, number of clicks, referring URL information, and a list of the total dollar amount earned by the affiliate. (IMG's Answer to the Amended Complaint at ¶ 6, Incorporated by Reference; Response No. 6 to Interrogatory Requests, attached as Exhibit 4 at pp. 11-12; Mackey deposition, attached as Exhibit 8 at p. 39 line 20 to p. 40 line 22; Schermerhorn deposition, attached as Exhibit 9 at p. 19 line 5 to p. 20 line 1). 24. IMG provides support to affiliates through a support system that allows affiliates to send questions to IMG and receive responses, "via toll and toll free telephone numbers posted in the footer of every page," and through email communications and instant messenger. (Response No. 4 to Interrogatory Requests, attached as Exhibit 4 at p. 10; Schermerhorn deposition, attached as Exhibit 9 at p. 16 line 21 to p. 17 line 16; Welch deposition, attached as Exhibit 7 at p. 10 line 15 to p. 12 line 6). 25. IMG sends a notification email to an affiliate each time the affiliate is credited with a Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -6- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 7 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 subscription to an IMG website. (Response No. 4 to Interrogatory Requests, attached as Exhibit 4 at p. 10; Sample Emails notifying affiliate of sale, attached as Exhibit 19). C. Affiliate Payment Programs 26. IMG has two payment plans for affiliates: "per sign-up" and "50/50 rev share." Affiliates on the per sign-up payment plan are paid more per sale the more sales they refer to IMG's websites. Affiliates on the rev share program earn 50 percent of the payments made by a subscriber. (Schermerhorn deposition, attached as Exhibit 9 at p. 13 line 7 to p. 14 line 12; Welch deposition, attached as Exhibit 7 at p. 45 line 16 to p. 46 line 1). 27. IMG runs bonus payouts to encourage affiliates to bring subscribers to IMG's websites. IMG ran a bonus whereby affiliates who brought in ten or more sales received a bonus. IMG ran a bonus payout called Fat Fridays that paid affiliates $50 per sign-up instead of the normal $25 or $30. IMG also ran a gift certificate incentive program that gave affiliates who sent in ten or more sign-ups over a period of time a choice of a gift certificate from a number of stores. (Schermerhorn deposition, attached as Exhibit 9 at p. 23 line 1 to p. 24 line 2; Welch deposition, attached as Exhibit 7 at p. 46 lines 8-14). D. IMG Dealings With Its Affiliates; Spam Policies and Practice 28. IMG maintains a computer database of affiliate information. The affiliate database contains the information provided by affiliates during the sign-up process as well as the status of their account -- active or terminated. (Schermerhorn deposition, attached as Exhibit 9 at p. 44 line 25 to p. 45 line 22). 29. IMG's response to Interrogatory Request No. 6 lists electronic mail and electronic newsletter marketing as examples of a type of marketing IMG affiliates may choose to use. (Response No. 6 to Interrogatory Requests, attached as Exhibit 4 at p. 12). 30. IMG's Program Agreement for Affiliates states that affiliates shall not use or employ any form of mass unsolicited electronic mailings. In its Program Agreement for Affiliates, IMG reserves the right to terminate an affiliate for sending mass unsolicited electronic mail Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -7- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 8 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 solicitations. (IMG's Program Agreement for Affiliates, attached as Exhibit 5 at ¶ 2.3). 31. IMG relies solely on the provision in its Program Agreement prohibiting spam by affiliates to prevent affiliates from sending commercial email in violation of CAN-SPAM and the Adult Labeling Rule. (IMG's Program Agreement for Affiliates, attached as Exhibit 5 at ¶ 2.3; Schermerhorn deposition, attached as Exhibit 9 at p. 30 lines 13-19). 32. IMG received complaints from individuals who were the recipients of spam sent by IMG affiliates. (Schermerhorn deposition, attached as Exhibit 9 at p. 32 lines 5-18). 33. IMG does not monitor or verify new affiliate sign-ups to determine if the applicant has been previously terminated and ensure that a terminated affiliate does not sign-up again. An affiliate who had been terminated for spamming can "easily" sign-up again to the Soulcash affiliate program by submitting different information during the affiliate sign-up process. (Schermerhorn deposition, attached as Exhibit 9 at p. 63 lines 14-17; Welch deposition, attached as Exhibit 7 at p. 59 line 8 to p. 60 line 20). 34. In an effort to monitor its affiliates, it would have been feasible for IMG to: a. ask subscribers to IMG's websites, as part of the membership sign-up process, how they learned of IMG. (Mackey deposition, attached as Exhibit 8 at p. 47 line 15 to p. 48 line 2). b. ask affiliates what promotional means they use to advertise IMG's websites. (Schermerhorn deposition, attached as Exhibit 9 at p. 18 line 22 to p. 19 line 1 and p. 24 lines 10-24; Welch deposition, attached as Exhibit 7 at p. 37 lines 1924). c. create a textlink on the first page of IMG's adult websites directing people who arrived there unwillingly to a complaint form. (Schermerhorn deposition, attached as Exhibit 9 at p. 28 lines 3-23). 35. IMG considered taking the following steps to monitor its affiliates: a. asking subscribers to IMG's websites, as part of the membership sign-up Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -8- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 9 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 process, how they learned of IMG. (Schermerhorn deposition, attached as Exhibit 9 at p. 27 line 2 to p. 28 line 2). b. creating a textlink on the first page of IMG's adult websites directing people who arrived there unwillingly to a complaint form. (Schermerhorn deposition, attached as Exhibit 9 at p. 28 lines 3-23). 36. IMG did not undertake any of the monitoring methods identified in Paragraph 34. a. IMG did not ask subscribers to IMG's websites if they were directed to IMG's websites through emails sent by affiliates. (Mackey deposition, attached as Exhibit 8 at p. 47 lines 5-14; Schermerhorn deposition, attached as Exhibit 9 at p. 18 lines 16-21; Welch deposition, attached as Exhibit 7 at p. 52 lines 6-10). b. IMG did not regularly ask affiliates what kinds of promotional tools they were using to promote IMG's websites. (Welch deposition, attached as Exhibit 7 at p. 36 line 24 to p. 37 line 5). c. IMG did not create a textlink on the first page of IMG's adult websites directing people who arrived there unwillingly to a complaint form. (Schermerhorn deposition, attached as Exhibit 9 at p. 28 lines 3-23). 37. Other than the provisions in its Program Agreement for Affiliates, IMG takes no affirmative steps to monitor affiliates for compliance with the CAN-SPAM Act and Adult Labeling Rule. Josh Mackey and Adam Welch were not aware of any steps IMG took to monitor affiliates for compliance with the CAN-SPAM Act and Adult Labeling Rule. Seth Schermerhorn testified that IMG does occasional manual reviews of affiliate payout information looking for suspicious transactions that are evidence of fraud or abuse. No affiliate had ever been terminated for violating CAN-SPAM or the Adult Labeling Rule as a result of one of these reviews. (Mackey deposition, attached as Exhibit 8 at p. 51 lines 20-23; Schermerhorn deposition, attached as Exhibit 9 at p. 28 line 24 to p. 30 line 12 and p. 78 lines 7-14; Welch deposition, attached as Exhibit 7 at p. 21 line 15 to p. 22 line 7). Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -9- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 10 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38. IMG did not have existing affiliates review the CAN-SPAM Act when the law went into effect. (Schermerhorn deposition, attached as Exhibit 9 at p. 30 lines 23-25; Welch deposition, attached as Exhibit 7 at p. 53 line 23 to p. 54 line 9). 39. IMG did not provide training on the CAN-SPAM Act to its employees. (Schermerhorn deposition, attached as Exhibit 9 at p. 12 lines 8-10). 40. IMG did not set up a designated email account to receive spam complaints. (Schermerhorn deposition, attached as Exhibit 9 at p. 34 lines 22-24). E. Microsoft Trap Accounts 41. As part of its continuing efforts to combat spam, Microsoft Corporation ("Microsoft") created and registered to itself a number of MSN Hotmail email accounts ("trap accounts"). The trap accounts are used to detect whether individuals or entities are sending spam to MSN Hotmail account users in violation of Microsoft's Terms of Use and Anti-Spam Policy. Microsoft did not consent to the receipt of email messages at the trap account addresses. (Bundy Declaration, attached as Exhibit 3 at p. 1; Vetter Declaration, attached as Exhibit 2 at p. 2). 42. In response to requests from the Federal Trade Commission, in or about November 2004, February 2005, and April 2006, Microsoft provided the government with hundreds of email messages sent by IMG affiliates to Microsoft's trap accounts. In addition to the original messages, Microsoft provided the government with copies of the messages created in Adobe PDF format. The Adobe PDF copies provide a snapshot of how the original email messages appeared and preserve the images in the event that the image sources in the original messages become inactive on the Internet. Microsoft also produced web captures created through HTTrack HTML. The web captures provide snapshots of where viewers would have been directed, e.g., what Internet websites they would have arrived at, had they clicked on the hyperlinked promotional material contained in the original messages. (Bundy Declaration, attached as Exhibit 3 at pp. 2-3; Vetter Declaration, attached as Exhibit 2 at p. 2). F. Violative Email Procured by IMG and Sent by IMG Affiliates Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -10- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 11 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 43. IMG affiliate "zillium" sent twenty-two unsolicited commercial email messages to Microsoft's trap accounts from September 8, 2004, to September 10, 2004. The email messages contain sexually explicit material and promote the IMG website gloryholestation.com. The messages bore hyperlinks that, when pressed, ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initiallyviewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; fail to include a valid physical postal address for IMG; and fail to include an opt-out mechanism. (Himelfarb Declaration at ¶¶ 9-12, attached as Exhibit 1). 44. IMG affiliate "zillium" sent five unsolicited commercial email messages to Microsoft's trap accounts on November 17, 2004. The email messages contain sexually explicit material and promote the IMG website gloryholestation.com. The messages bore hyperlinks that, when pressed, ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initially-viewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; fail to include a valid physical postal address for IMG; and fail to include an opt-out mechanism. (Himelfarb Declaration at ¶¶ 36-38, attached as Exhibit 1). 45. IMG included "zillium" as a terminated affiliate on the list of terminated affiliates provided by IMG in Response to Document Request No. 7. (Terminated Webmasters Response No. 7 to Document Requests, attached as Sealed Exhibit 12 at p. 107). 46. The affiliate accounts "zillium" and "ortika" are operated by the same person. Both accounts are registered to Renaud Philappart and both directed that payments be made to Renaud Philappart. (Excerpts from Response No. 4 to Document Requests - Affiliate Information, attached as Sealed Exhibit 13). 47. The IMG affiliate "ortika" is an active IMG affiliate account. (Terminated Webmasters - Response No. 7 to Document Requests, attached as Sealed Exhibit 12). 48. IMG affiliate "b32day" sent twelve unsolicited commercial email messages to Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -11- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 12 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Microsoft's trap accounts from July 6, 2004, to July 18, 2004. The email messages contain sexually explicit material and promote the IMG websites blacksdowhites.com, gloryholestation.com, jizzlickers.com, and melodyhart.com. The messages bore hyperlinks that, when pressed, ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initially-viewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; and fail to include a valid physical postal address for IMG. In addition, the messages contain an opt-out mechanism that appears after the sexually-explicit material rather than within the initially-viewable area. (Himelfarb Declaration at ¶¶ 13-19, attached as Exhibit 1). 49. IMG paid the affiliate "b32day" $1,634.97 from January 2004 to December 2005. (Excerpts from Webmaster Earnings Document - Response No. 14 to Document Requests, attached as Sealed Exhibit 11). 50. The affiliate accounts "b32day" and "a313372" are operated by the same person. These two accounts were registered under the same name, phone number, physical address, and email address. Affiliate accounts "b32day" and "a313372" both directed that their payments be made in the same name of 634099 BC Ltd. (Excerpts from Response No. 4 to Document Requests - Affiliate Information, attached as Sealed Exhibit 13). 51. IMG paid the affiliate account "a313372" $4,201.47 from January 2004 to December 2005. (Excerpts from Webmaster Earnings Document - Response No. 14 to Document Requests, attached as Sealed Exhibit 11). 52. The IMG affiliate "b32day" is an active IMG affiliate account. (Terminated Webmasters - Response No. 7 to Document Requests, attached as Sealed Exhibit 12). 53. IMG affiliate "scorpion" sent 355 unsolicited commercial email messages to Microsoft's trap accounts from May 28, 2004, to August 2, 2004. The email messages contain sexually explicit material and promote the IMG websites funtit.com, gloryholestation.com, jizzlickers.com, and tastytranny.com. The messages bore hyperlinks that, when pressed, Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -12- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 13 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initially-viewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; and fail to include a valid physical postal address for IMG. In addition, the messages contain an opt-out mechanism that appears after the sexually-explicit material rather than within the initially-viewable area. (Himelfarb Declaration at ¶¶ 20-32, attached as Exhibit 1). 54. IMG paid the affiliate "scorpion" $2,057.00. (List of Affiliate Payment Information, attached as Exhibit 10). 55. The affiliate accounts "scorpion," "teddybear," and "dacash" are operated by the same entity or person. These three accounts were registered under the same name, phone number, physical address, and email address. Affiliates "scorpion," "teddybear," and "dacash" directed that their payments be made in the same name of Maps Holding, Inc. (Excerpts from Response No. 4 to Document Requests - Affiliate Information, attached as Sealed Exhibit 13). 56. IMG paid "dacash" $8,121.27. (List of Affiliate Payment Information, attached as Exhibit 10). 57. IMG affiliate "teddybear" sent fourteen unsolicited commercial email messages to Microsoft's trap accounts on July 15, 2004. The email messages contain sexually explicit material and promote the IMG website bootycakes.com. The messages bore hyperlinks that, when pressed, ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initially-viewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; and fail to include a valid physical postal address for IMG. In addition, the messages contain an opt-out mechanism that appears after the sexually-explicit material rather than within the initially-viewable area. (Himelfarb Declaration at ¶¶ 33-35, attached as Exhibit 1). 58. IMG paid "teddybear" $2,367.16. (List of Affiliate Payment Information, attached as Exhibit 10). Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -13- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 14 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 59. IMG affiliate "imatrix" sent five unsolicited commercial email messages to Microsoft's trap accounts on August 7, 2004. The email messages contain sexually explicit material and promote the IMG website jizzlickers.com. The messages bore hyperlinks that, when pressed, ultimately directed the viewer to a website owned by IMG. The email messages fail to contain the required label within the subject line or initially-viewable area of the messages; contain sexually-explicit material within the initially-viewable area of the messages; and fail to include a valid physical postal address for IMG. In addition, the messages contain an opt-out mechanism that appears after the sexually-explicit material rather than within the initially-viewable area. (Himelfarb Declaration at ¶¶ 39-41, attached as Exhibit 1). 60. The IMG affiliate "imatrix" is an active IMG affiliate account. (Terminated Webmasters - Response No. 7 to Document Requests, attached as Sealed Exhibit 12). 61. The email messages described in Paragraphs 43 through 59 were unsolicited. IMG produced one document in response to the United States' First Request for Production of Documents No. 16 for "documents that demonstrate affirmative consent by a person to receive commercial electronic mail message containing sexually oriented material." The only document IMG produced in response to Document Request No. 16 was IMG's Terms and Conditions of Subscription, a document that outlines terms and conditions for IMG's subscribers and does not show any evidence of affirmative consent by any person. (Affiliate Terms and Conditions of Subscription - Response No. 16 to Document Requests, attached as Exhibit 20). 62. In addition, Microsoft never consented to the receipt of any email to its trap accounts. (Vetter Declaration, attached as Exhibit 2 at p. 2). 63. The email messages described in Paragraphs 43 through 59 contain sexually explicit material, as is evident from the face of the messages. 64. IMG affiliates zillium, b32day, scorpion, teddybear, and imatrix sent 413 sexually explicit email messages promoting websites owned by IMG. (Himelfarb Declaration at ¶42, Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -14- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 15 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 attached as Exhibit 1). III. Summary Judgment Standard Summary judgment is warranted if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Baccarat Fremont Developers v. U.S. Army Corps of Eng'rs, 425 F.3d 1150, 1158 (9th Cir. 2005). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party has the initial burden of establishing that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). This burden may be satisfied by any kind of admissible evidence. Id. at 324. Once the moving party demonstrates that there are no genuine issues of material fact warranting trial, the non-moving party is required to produce evidence in opposition to the motion. Id. at 324. The opposing party must come forward with "specific facts" showing that there is a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). It is not enough for the nonmovant to offer merely colorable evidence that a genuine issue of material fact exists for trial. FTC v. Gill, 265 F.3d 944, 954 (9th Cir. 2001). Because there is no genuine issue of material fact as to whether Defendant IMG initiated hundreds of unsolicited commercial email messages that contain sexually oriented material and violated CAN-SPAM and the Rule, the Court should enter summary judgment against IMG as to liability for those violations. Determining appropriate relief, including the amount of civil penalty, is an issue to be determined by further proceedings. IV. Background on CAN-SPAM and the Adult Labeling Rule Congress enacted CAN-SPAM and directed the Federal Trade Commission ("FTC") to promulgate what became the Adult Labeling Rule in part to protect people from being exposed to sexually explicit material without taking some affirmative step to see the material. See Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -15- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 16 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 U.S.C. § 7701(a)(5); see also, Federal Trade Commission, Statement of Basis and Purpose, Label for Email Messages Containing Sexually Oriented Material, 16 C.F.R. Part 316 (April 19, 2004) (Introduction). By dictating that certain warnings and opt-out mechanisms must appear in the initially viewable area of the message, and commanding that sexually oriented material1 cannot appear in the initially viewable area, the Act and Rule protect recipients from unintentionally viewing material that may be classified as vulgar or pornographic. See Federal Trade Commission, Statement of Basis and Purpose, Label for Email Messages Containing Sexually Oriented Material, 16 C.F.R. Part 316 (April 19, 2004) (Introduction). The Act and Rule are intended to protect minor recipients from unwillingly viewing inappropriate material. Congressional intent in this regard could not be clearer. As Senator McCain stated: "There are other costs to our society besides monetary costs. All of us are deeply concerned about the risks to our children who use e-mail and may be victimized by the nearly 20 percent of spam that contains pornographic material, including graphic sexual images." 149 Cong. Rec. S13012, 13020 (daily ed. Oct. 22, 2003). Congressman Upton was similarly concerned: "As the father of two young kids, I am particularly pleased that this bill requires warning labels on commercial e-mails which contain sexually oriented material, and it protects our kids from being unwittingly exposed to such garbage that might pop up in the family's inbox." 149 Cong. Rec. H12186, 12194 (daily ed. Nov. 21, 2003). See also S. Rep. No. 108-102, at 4 (2003) (noting that "[u]nsuspecting children who simply open e-mails with seemingly benign subject lines may be either affronted with pornographic images in the e-mail message itself, or automatically and instantly taken-without requiring any further action on their part (like clicking on a link)-to an adult web page exhibiting sexually explicit images"); The Act and the Rule prohibit "sexually oriented material" from an email message's initially viewable area. "Sexually oriented material" encompasses "actual or simulated ­ (i) sexual intercourse, including genital-genital, oral-genital, anal-genital, or oral-anal, whether between persons of the same or opposite sex; (ii) bestiality; (iii) masturbation; (iv) sadistic or masochistic abuse; or (v) lascivious exhibition of the genitals or pubic area of any person[.]" 15 U.S.C. § 7704(d)(4); 18 U.S.C. § 2256(2)(A). Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 1 -16- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 17 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 149 Cong. Rec. H12186, 12194 (daily ed. Nov. 21, 2003) (statement of Congressman Dingell) ("I am particularly pleased that the bill permits law enforcement to go after those who disguise sexual messages and through such deception are able to send sexual material into our homes and into the hands of our children. This is a critical first step against those who profit by sending unwanted and offensive sexual commercial messages. It will stop much wrongdoing."). Under the Act and the Rule, any person who initiates the transmission to a "protected computer"2 of any commercial email message3 that includes sexually oriented material must include the phrase "SEXUALLY-EXPLICIT: " at the beginning of the subject line in the header of the message. 15 U.S.C. § 7704(d)(1)(A); 16 C.F.R. § 316.4(a)(1). CAN-SPAM and the Adult Labeling Rule also require that any commercial email message that includes sexually oriented material place only the following information within the content of the message that is initially viewable by the recipient, when the message is opened by the recipient and absent any further action by the recipient ("initially viewable content"): (A) the phrase "SEXUALLY-EXPLICIT: " in a clear and conspicuous manner, 15 U.S.C. § 7704(d)(1)(B)(i); 16 C.F.R. § 316.4(a)(2)(i); (B) clear and conspicuous identification that the message is an advertisement or solicitation, 15 U.S.C. § 7704(d)(1)(B)(ii); 16 C.F.R. § 316.4(a)(2)(ii); (C) clear and conspicuous notice of the opportunity of a recipient to decline to receive further commercial email messages from the sender, 15 U.S.C. § 7704(d)(1)(B)(ii); 16 C.F.R. § 316.4(a)(2)(iii); (D) a functioning return email address or other Internet-based mechanism, clearly and "Protected computer" includes all computers used in interstate commerce or communications. See 15 U.S.C. § 7702(13), referencing 18 U.S.C. § 1030(e)(2)(B). The definition is broad, encompassing almost all computers that utilize email or browse the web. "Commercial electronic email message" includes any message that primarily promotes a "commercial product or service (including content on an Internet website operated for a commercial purpose)." 15 U.S.C. § 7702(2)(A). Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 3 2 -17- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 18 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conspicuously displayed, that a recipient may use to submit a reply email message or other form of Internet-based communication requesting not to receive future commercial email messages from that sender at the email address where the message was received, and that remains capable of receiving such messages or communications for no less than 30 days after the transmission of the original message, 16 C.F.R. § 316.4(a)(2)(iv); (E) clear and conspicuous display of a valid physical postal address of the sender,4 15 U.S.C. § 7704(d)(1)(B)(ii); 16 C.F.R. § 316.4(a)(2)(v); and (F) any needed instructions on how to access, or activate a mechanism to access, the sexually oriented material, 15 U.S.C. § 7704(d)(1)(B)(iii); 16 C.F.R. § 316.4(a)(2)(vi). Under CAN-SPAM itself, it is also unlawful for any person to initiate commercial electronic mail to a protected computer unless the message provides clear and conspicuous notice of an opt-out provision and bears a valid physical postal address of the sender. 15 U.S.C. § 7704 (a)(3), (a)(5)(A)(ii)-(iii). These provisions apply whether or not the email contains sexual material. IMG is liable for the hundreds of email messages that its affiliates sent that violate these provisions of the law.5 Liability under CAN-SPAM is assessed for "initiating" email messages The term sender is defined as "a person who initiates such a message." 15 U.S.C. § 7702(16). IMG is a sender, and thus IMG's physical postal address is required, because IMG initiated the commercial electronic messages at issue. The three counts of the Complaint reflect these CAN-SPAM and Rule requirements. Count I alleges that on numerous instances IMG initiated the transmission to protected computers of commercial email with sexually oriented material that did not include the required "SEXUALLY-EXPLICIT: " label at the beginning of the subject line. Count I also alleges that these messages were unlawful in that sexually explicit material appeared in the initially viewable area, and the following required information was absent: another recitation of "SEXUALLY-EXPLICIT: "; a notice of the right to opt-out of receiving further email; and a clear and conspicuous display of a valid physical postal address of the Defendant. These are alleged to violate 15 U.S.C. § 7704(d) and 16 C.F.R. § 316.4(a). Counts II and III of the Complaint involve the same email messages, and allege violations of CAN-SPAM provisions that apply to all commercial electronic mail, whether or not it contains sexually oriented material. Count II alleges that the emails failed to include clear and conspicuous notice of the opportunity to decline to receive further commercial email messages, violating 15 U.S.C. § 7704(a)(5)(A)(ii) and (a)(3). Count III alleges that the emails failed to include Defendant's valid Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 5 4 -18- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 19 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that violate the statute. See 15 U.S.C. § 7704(a)(1) ("It is unlawful for any person to initiate the transmission, to a protected computer, of a commercial electronic message . . . ."); 15 U.S.C. § 7704(a)(5)(A) (same). Under CAN-SPAM: The term "initiate" when used with respect to a commercial electronic mail message, means to originate or transmit such message or to procure the origination or transmission of such message, but shall not include actions that constitute routine conveyance of such message. For purposes of this paragraph, more than one person may be considered to have initiated a message. 15 U.S.C. § 7702(9) (emphasis added).6 CAN-SPAM defines "procure" as follows: The term "procure" when used with respect to the initiation of a commercial electronic mail message, means intentionally to pay or provide other consideration to, or induce, another person to initiate such a message on one's behalf. 15 U.S.C. § 7702(12). "Initiate" means to originate or procure the origination of such message, and the definition of "initiate" specifically provides that "more than one person may be considered to have initiated a message." 15 U.S.C. § 7702(9). In drafting this language, Congress envisioned that one person could push the button and others provide consideration or induce the "button pusher" to push the button -- and all violate the law. A colloquy between Senators Burns and Wyden confirms that Congress intended that multiple parties (e.g., merchants and spammers) may both be liable under CAN-SPAM for the same email. In response to Senator Burns' question "Can't the FTC, State A.G.s, and Internet Service Providers bring actions under Section 57 against parties who aren't themselves spamming, but rather hire spammers to promote their products and services," Senator Wyden responds: "Absolutely. The bill's definition of `initiate' makes that clear, because it applies not only to the spammer that physical postal address, violating 15 U.S.C. § 7704(a)(5)(A)(iii). "Routine Conveyance" means the "transmission, routing, relaying, handling, or storing, through an automatic technical process, of an electronic mail message for which another person has identified the recipients or provided the recipient addresses." 15 U.S.C. § 7702(15). The definition encompasses, e.g., the routers, and Internet Service Providers that handle email message traffic. The Government's Complaint asserts claims under Section 5 of the CAN-SPAM Act. 15 U.S.C. § 7704. Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 7 6 -19- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 20 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 originates the actual email, but also to a party who has hired or otherwise induced the spammer to send the e-mail on its behalf. If the e-mail message violates the bill, both parties would be on the hook under Section 5, and enforcement would be possible against both or either parties." 149 Cong. Rec. S 15938, 15945. Thus, CAN-SPAM holds the button pusher liable, as well as those who procure or induce the illegal email messages. That is, CAN-SPAM imposes liability on all parties who initiate violative email messages. IMG meets the definition of a statutory initiator because IMG procured the transmission of the violative messages at issue. CANSPAM's legislative history, discussed infra Section VI, demonstrates further that CAN-SPAM was designed to impose liability on entities like IMG in cases as this. V. IMG Violated CAN-SPAM and the Adult Labeling Rule The evidence demonstrates that IMG initiated the transmission of hundreds of unsolicited commercial email messages that violated CAN-SPAM and the Adult Labeling Rule. Therefore, IMG should be found liable for violating the law.8 IMG reached consumers through an affiliate program called "Soulcash." As discussed below, IMG paid affiliates for bringing paying subscribers to IMG's websites and virtually anyone could sign up as an IMG affiliate and advertise IMG's websites. The affiliates were the spammers who sent the violative email, but IMG is responsible because it initiated the email. IMG readily acknowledges that it operated the Soulcash affiliate program. The operation of Soulcash is detailed in the Statement of Facts. (SOF 10-17) There is similarly no dispute that email promoting IMG's websites was delivered to various recipients. The Government received these emails from Microsoft.9 The messages were delivered to email accounts, called "trap 8 The effective date of CAN-SPAM was January 1, 2004, and the effective date of the Adult Labeling Rule was May 19, 2004. The violative emails initiated by IMG after January 1, 2004, and before May 19, 2004, only violate the CAN-SPAM Act as the Rule was not effective when these emails were initiated. References in the Memorandum to email violating both the Act and the Rule refer to those email messages sent on or after May 19, 2004. Allyson Himelfarb, an Investigator with the FTC, reviewed the emails obtained through the Microsoft trap accounts. Her declaration, attached as Exhibit 1, details the facts as to how these emails Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 9 -20- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 21 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 accounts," maintained by Microsoft to monitor spam activity over the Internet. (SOF 41-42) Email that was delivered to the Microsoft trap accounts promoting IMG websites is associated with various Soulcash affiliates. (SOF 43-59) The Government does not anticipate that Defendant will seriously dispute any of this. Rather, the Government believes that IMG will dispute its legal liability for violative email associated with (or sent by) Soulcash affiliates. A. The Email Messages Promoting IMG's Websites Violate CAN-SPAM and the Rule IMG affiliates promoted IMG's websites through unsolicited commercial email messages that contained sexually oriented material. The hundreds of email messages at issue were clearly "unsolicited" because they were delivered to the Microsoft trap accounts, which were dummy accounts set up just to determine what spam would be delivered to them. These accounts received violative email simply because they existed. Microsoft never provided consent to anyone to send email to any of the trap accounts. (SOF 41, 62) The United States sought from IMG any evidence it had regarding affirmative consent to "receive commercial electronic mail message[s] containing sexually oriented material," and IMG produced no responsive documents showing evidence of affirmative consent. (SOF 61) The emails at issue are "commercial" because their purpose was to induce people to subscribe to IMG's adult oriented pay-websites. As is evident from the face of the email messages, the messages also contain sexually oriented material as defined by 18 U.S.C. § 2256(2)(A). Examples of unsolicited commercial email messages sent by IMG affiliates that contain sexually explicit material are at Exhibit 14. The messages contain hyperlinks that when "pressed" direct the viewer to the underlying IMG websites being advertised. violate CAN-SPAM and the Rule and explains how these emails are associated with specific IMG affiliates. Exhibit 15 contains the universe of email messages that the United States contends violate CAN-SPAM and the Adult Labeling Rule. Exhibit 14 contains the specific email messages discussed in Ms. Himelfarb's declaration that are a representative sample of the universe of messages. Ms. Himelfarb's declaration refers to the emails in Exhibit 14 as copies of printouts with specific attachment numbers. The specific email messages from Exhibit 14 discussed in Ms. Himelfarb's declaration are also attached as hard copies to the courtesy copy of exhibits provided to chambers. Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -21- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 22 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The unsolicited commercial email messages promoting IMG violated CAN-SPAM and the Rule. All of the hundreds of email messages at issue contain sexually explicit material in the initially viewable content of the messages, in violation of the Act, 15 U.S.C. § 7704(d), and the Adult Labeling Rule, 16 C.F.R. § 316. In addition, all of the messages fail to include the required label in the subject line of the message and initially-viewable area of the message; and fail to include an opt-out mechanism or valid physical postal address of the sender within the initially viewable area. 15 U.S.C. § 7704(a)(3), (a)(5)(A)(ii)-(iii); 15 U.S.C. § 7704(d); 16 C.F.R. § 316. The sample email messages discussed in Ms. Himelfarb's declaration, which are exhibits to that declaration, illustrate these violations. B. IMG Induced Affiliates to Send Violative Messages While many of the affiliates who sent violative emails received payment for the sales they referred to IMG, the CAN-SPAM Act does not require an affiliate to be paid for sending violative emails in order for a violation to occur. A company could be liable as an initiator of violative emails without ever paying an affiliate for its services. This is because the Act imposes liability on a company that procures the initiation or transmission of a message, and a company can procure the initiation of a violative email by paying an affiliate or by inducing an affiliate to send violative email. Inducement is sufficient because it is the procuring of the initiation of the email that creates the forbidden result, i.e., the sending of the violative email. After-the-fact payment to the affiliate by a company is a telling ­ but not necessary component of liability. IMG provided affiliates with marketing and promotional materials that could be used in emails to promote IMG's websites. (SOF 18-19) Specifically, IMG provides the following to affiliates for marketing purposes: hosted galleries, downloadable galleries, banners, pictures of the day, movies of the day, and interstitials. (SOF 19) IMG provides these marketing and promotional tools to affiliates to "give the affiliate a means to drive new . . . prospective website members to our sites." (SOF 20) As part of the affiliate program, IMG provides assistance to affiliates through a support Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -22- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 23 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 system that allows affiliates to send questions to IMG and receive responses, "via toll and toll free telephone numbers posted in the footer of every page," and through email communications and instant messenger. (SOF 24) IMG also provides detailed sales statistics to affiliates including number of sales, number of clicks, referring URL information, and a list of the total dollar amount earned by the affiliate. (SOF 23) IMG even sends a notification email to an affiliate each time the affiliate is credited with a subscription to an IMG website. (SOF 25) IMG induced affiliates to send violative emails through promises of payment. Affiliates earn money each time they refer a customer who subscribes to one of IMG's adult websites. (SOF 10) IMG has two payment plans for affiliates, "per sign-up" and "revenue share." Affiliates on the per sign-up payment plan are paid more per sale, with payments increasing with the number of sales they refer to IMG's websites. Affiliates on the revenue share program receive fifty percent of the gross receipts from the accounts they refer. (SOF 26) To induce affiliates to bring subscribers to IMG's websites, IMG ran bonus payouts. (SOF 27) IMG ran a bonus payout called Fat Fridays that paid affiliates $50 per sign-up instead of the normal $25 or $30. (SOF 27) IMG ran a gift certificate incentive program that gave affiliates who sent in ten or more sign-ups over a period of time a choice of a gift certificate from a number of stores. (SOF 27) Several of the affiliates who sent the violative emails at issue were paid for successfully recruiting subscribers to IMG's adult websites. According to records produced by IMG, IMG paid affiliate "b32day" $1,634.97 (SOF 49); affiliate "scorpion" $2,057.00 (SOF 55); affiliate "teddybear" $2,367.16 (SOF 58); affiliate "dacash" $8,121.27 (SOF 56); and affiliate "a313372" $4,201.47 (SOF 51).10 The government's evidence does not include emails sent directly by the affiliates "dacash" and "a313372." However, these two accounts,"dacash" and "a313372," are operated by individuals that did send some of the violative emails. (Ex. 15) The affiliate accounts "b32day" and "a313372" were registered under the same name, phone number, physical address, and email address and both affiliates directed that their payments be made in the name of 634099 BC Ltd. (SOF 50) The affiliate accounts "scorpion," "teddybear," and "dacash" were registered under the same name, phone number, physical Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 10 -23- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 24 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IMG induced affiliates by promising to pay them for bringing sales to IMG's websites and providing all the tools and support necessary for the affiliates to make those sales happen. Thus, IMG procured the transmission of the violative emails, including the hundreds of emails that came to the government's attention. As such, IMG initiated the unlawful email messages and violated CAN-SPAM and the Rule. VI. CAN-SPAM's Legislative History Underscores IMG's Liability IMG is liable for the unlawful transmission of spam because it intentionally provided consideration to and induced others to initiate violative email messages on IMG's behalf. What is required under this standard is that IMG did not act accidentally in inducing violative email. The Act does not require any showing of specific intent or knowledge for liability to attach. Rather, IMG's procurement of violative email makes IMG liable for injunctive relief for violating the Act. The legislative history of CAN-SPAM demonstrates that Congress intended for procurers of commercial email such as IMG to be held liable in FTC actions as this. That is, Congress targeted entities such as IMG for liability for injunctive relief premised on CAN-SPAM violations associated with those induced to send commercial email, whether or not the "inducer" (here, IMG) had knowledge of the violative email. Indeed, Congress intentionally rejected a knowledge standard in the definition of "procure" as it applies in FTC enforcement actions. In the July 16, 2003, Senate version of the bill (S. 877), the definition of "procure" was as follows: The term "procure," when used with respect to the initiation of a commercial electronic mail message, means intentionally to pay or provide other consideration to, or induce, another person to initiate such a message on one's behalf, knowing, or consciously avoiding knowing, the extent to which that person intends to comply with the requirements of this Act. S. 877 Sec. 3(13) (July 16, 2003). However, the version of the bill that became law does not include this knowledge requirement in the definition of "procure." See 15 U.S.C. § 7702(12). address, and email address and these three affiliates directed that their payments be made in the name of Maps Holding Inc. (SOF 55) Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -24- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 25 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Thus, Congress considered inserting a "knowledge" element in this violation, but decided not to do so. The legislative history further underscores Congressional intent by elaborating on the very meaning of "knowledge" that was deleted from this definition. A Senate Report discusses the definition of "procure" that included the knowledge requirement that was later jettisoned. The Report discusses the possibility of renegade behavior by a third party hired by a company to send spam. The Senate Committee report states: The intent of this definition is to make a company responsible for e-mail messages that it hires a third party to send, unless that third party engages in renegade behavior that the hiring company did not know about. However, the hiring company cannot avoid responsibility by purposefully remaining ignorant of the third party's practices. The "consciously avoids knowing" portion of this definition is meant to impose a responsibility on a company hiring an e-mail marketer to inquire and confirm that the marketer intends to comply with the requirements of this Act. S. Rep. No. 108-102, at 15 (2003). When Congress struck the knowledge requirement from the final law as it applies to FTC enforcement actions, all of this analysis was rejected. A company that induces a third party to send commercial email is liable for that third party's violations regardless of whether the company knows or has reason to know of any possible CAN-SPAM violations. There is no exception for renegade behavior. Thus, Congress enacted a legislative scheme which gave broad discretion to the FTC to bring enforcement actions against those who caused CAN-SPAM violations to occur. Congress deleted any "renegade affiliate" defense that IMG might proffer. Even in those parts of the statute where Congress did impose a knowledge element for a violation,11 Congress specifically deleted these knowledge elements when the FTC was seeking cease-and-desist orders and injunctive relief. 15 U.S.C. § 7706(e). Congressional intent to impose liability in FTC enforcement actions against those who induce CAN-SPAM violations, regardless of their "knowledge" of the violations, could hardly be clearer. 11 See § 7704(a)(1)(C), (a)(2), (a)(4)(A) clause (ii), (iii), and (iv); § 7704(b)(1)(A), (b)(3). U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 Plaintiff's Motion for Summary Judgment CV05-1285L -25- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 26 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Congress further demonstrated its intent for a strict liability scheme for procurers of spam under Section 5 when it added the knowledge element into the provision authorizing private causes of action brought by Internet Service Providers ("ISPs"). The "special definition of `procure'," applicable in cases brought by ISPs, includes the words, "with actual knowledge, or by consciously avoiding knowing, whether such person is engaging, or will engage, in a pattern or practice that violates this [Act]." 15 U.S.C. § 7706(g)(2). Congress did not include this language in the definition of procure for FTC enforcement actions under Section 5 and, therefore, Congress intended that such procurers would be liable regardless of any knowledge of their spammers' conduct. The stark contrast between the relevant criminal and civil provisions of the law further emphasize that the latter has no knowledge requirement. The criminal provision is 15 U.S.C. § 7704(d)(5). Section 7704(d)(1) creates the requirement to place warning labels on commercial electronic mail containing sexually oriented material such as the spam involved in this case. Section (d)(5) makes it a five-year felony to "knowingly" violate this provision. 15 U.S.C. § 7704(d)(5). If the civil violation of CAN-SPAM already included a knowledge element, then adding a "knowingly" requirement to the criminal provision would be mere surplusage and there would be no distinction between the mental elements of civil and felony violations, at least in circumstances involving "procuring" violative spam. Congress did not create such a nullity when it defined the criminal offense. Reviewing the statutory scheme as a cohesive whole shows that whereas a criminal case requires actual knowledge and a suit brought by an ISP requires consciously avoiding knowledge, the present civil case requires something less to obtain injunctive relief. What is required, and what is undisputed in this case, is that IMG did not act accidentally in inducing the violative email. IMG's Soulcash affiliate program was created quite deliberately. VII. IMG is Liable for Civil Penalties Pursuant to Section 7(a) of CAN-SPAM, the Act "shall be enforced by the [FTC] as if the Plaintiff's Motion for Summary Judgment CV05-1285L U.S. Department of Justice P.O. Box 386 Washington, DC 20044 (202) 353-1991 -26- Case 2:05-cv-01285-RSL Document 17 Filed 09/05/2006 Page 27 of 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 violation of the Act were an unfair or deceptive act or practice proscribed under Section 18(a)(1)(B) of the [FTC Act] (15 U.S.C. § 57a(a)(1)(B))." That provision makes violations of CAN-SPAM enforceable as though they were violations of an FTC Trade Regulation Rule. In order to recover civil penalties for violations of a Trade Regulation Rule, and thus for a CAN-SPAM violation, the Governmen

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