Legal Update - March - 2005
The CAN-SPAM Act

New regulations clarify when certain provisions of the CAN-SPAM Act apply

Introduction

The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (the "CAN-SPAM Act" or the "Act"), which went into effect on January 1, 2004, has been welcomed by many as a valiant effort to stem the tide of unwanted e-mails flooding inboxes around the country. Failure to comply with the Act can result in significant civil fines and, in some cases, substantial criminal penalties. Rather than banning all unsolicited e-mail, the Act sets forth information that must be included in some types of e-mail and prohibits certain misleading e-mail practices. Notably, the CAN-SPAM Act covers many activities not commonly understood to be "spamming." Thus, businesses that do not send bulk e-mail, or that only e-mail their current customers, must still review the Act to ensure compliance. The Federal Trade Commission recently issued regulations, which will become effective on March 28, 2005, providing guidance for determining whether certain provisions of the Act apply to a given e-mail.

Types of E-mail That Are Subject to the CAN-SPAM Act

The CAN-SPAM Act applies to both solicited and unsolicited e-mails regardless of whether the sender has a pre-existing relationship with the recipient. The CAN-SPAM Act does not apply only to bulk e-mailers -- even a single e-mail between two businesses with a long-standing relationship may be covered.

The Act applies to all commercial, transactional and relationship e-mails. A "commercial e-mail" is any e-mail with the primary purpose of advertising or promoting a commercial product or service. A "transactional or relationship e-mail" is an e-mail with a primary purpose to (i) facilitate or complete a commercial transaction that the recipient has agreed to; (ii) provide warranty, recall or security information regarding a service or product purchased by the recipient; (iii) provide an updated account balance or notification of a change in the terms or features of or the recipient's standing with respect to a subscription, membership, account, loan, or comparable ongoing commercial relationship involving the ongoing purchase or use by the recipient of the sender's products or services; (iv) provide information directly related to an employment relationship or related benefit plan in which the recipient is currently involved; or (v) deliver goods or services, including updates or upgrades, that the recipient is entitled to receive under the terms of a previous transaction. As discussed below, however, a majority of the specific requirements of the Act only apply to commercial e-mails, and not to mere transactional or relationship e-mails.

Requirements of the CAN-SPAM Act

The following provisions apply to all commercial, transactional and relationship e-mails:

• False header information (an e-mail's "From" and "To" line and the routing information) is prohibited.
• Misleading subject lines are prohibited.
• Certain methods of obtaining e-mail addresses and sending e-mails (generally associated with bulk e-mailers) will lead to enhanced penalties.

Additionally, commercial e-mails (but not transactional and relationship e-mails) are subject to the following restrictions:

• Clear and conspicuous notice of an internet-based opt-out mechanism is required.
• The opt-out mechanism must remain operative for 30 days after the e-mail is transmitted.
• The sender and anyone acting on its behalf must stop sending commercial e-mail within ten business days of receiving notice that the recipient wishes to opt-out of receiving such messages.
• E-mails containing advertisements must be clearly identified as such (unless the recipient has given prior consent to receive the message).
• A valid physical postal address must be given.
• A warning that the e-mail contains sexually oriented material is required (unless the recipient has given prior consent).

When an E-mail Is a Commercial E-mail

Because many of the requirements of the CAN-SPAM Act apply to commercial e-mails but not to transactional or relationship e-mails, a key issue for many businesses is determining whether an e-mail has a primary purpose of advertising or promoting a commercial good or service and is hence a commercial e-mail. Some e-mails contain only promotional materials or only transactional or relationship information and are therefore easy to classify as either a commercial e-mail or a transactional or relationship e-mail. Some e-mails, however, contain both transactional or relationship information and also advertisements or promotions. For example, an e-mail informing a customer that its subscription is about to expire and promoting renewal options may be considered either a commercial e-mail or a transactional or relationship e-mail, depending on the e-mail's subject line and layout.

Under the recently released regulations, an e-mail containing both an advertisement or promotion and transactional or relationship information will be considered a commercial e-mail if (i) a person reading the e-mail's subject line would likely conclude that the message contains the advertisement or promotion of a commercial product or service; or (ii) the e-mail's transactional or relationship content does not appear, in whole or in substantial part, at the beginning of the body of the message. Whether a beginning portion of an e-mail message containing some of the transactional or relationship content is substantial is measured by the relative importance of the information rather than by the portion's length.

As a result of the new regulations, a sender can generally control whether an e-mail containing both promotional and transactional or relationship information will be considered a commercial e-mail by carefully considering the wording of the subject line and the location of the transactional or relationship content. For example, an e-mail with the subject line "Your Subscription Is Expiring," with the relevant customer account information at the beginning of the e-mail, followed by a promotion of renewal options, likely will not be considered a commercial e-mail. On the other hand, a similar e-mail with the subject line "Renew Now!" likely would be a commercial e-mail. If a sender wishes to craft a subject line to avoid the suggestion that the e-mail contains an advertisement or promotion, he or she must be careful that the subject line does not become misleading regarding the e-mail's content.

Preemption

Generally, the CAN-SPAM Act simplifies compliance efforts because it preempts many state anti-spam laws. Not all relevant state laws, however, are preempted by the CAN-SPAM Act. Thus, businesses must still be cognizant of state laws, such as laws forbidding fraud or trespass, which may be applicable to e-mail messages.

Enforcement

Not every recipient of an e-mail that violates the Act may sue the sender. The Act may only be enforced by the federal government, state governments, and internet service providers. A sender who violates the Act could face civil penalties of several million dollars. In addition, some violations of the Act may lead to substantial criminal penalties. A party may be held liable for violating the Act even if it did not send the e-mail, if the e-mail was sent for its benefit.

To minimize the risk of litigation and the exposure to such penalties, it behooves all businesses that rely on e-mail to do business to have their current practices and policies regarding electronic communications reviewed to ensure legal compliance with the CAN-SPAM Act.

Funkhouser Vegosen Liebman & Dunn Ltd. publishes updates on legal issues and summaries of legal topics for its clients and friends solely for general informational purposes. They do not constitute legal advice, nor are they intended as a substitute for obtaining legal or other professional advice based upon specific factual circumstances or issues. If we can be of assistance, please call or write Jim Groth, 312.701.6830, or Dan Hinkle, 312.701.6873, , or consult with your regular FVLD contact.

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