From PLI s Online Program CAN-SPAM Final Rule Issued: Are You Compliant? #19517 INTELLECTUAL PROPERTY ASPECTS OF DOING BUSINESS IN CHINA

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1 From PLI s Online Program CAN-SPAM Final Rule Issued: Are You Compliant? # INTELLECTUAL PROPERTY ASPECTS OF DOING BUSINESS IN CHINA Elizabeth Chien-Hale Institute for Intellectual Property in Asia Copyright 2007 Attachment I: Copyright 2006 Peter K. Yu. Reprinted with permission of the author Attachment II: Copyright 2005 Peter K. Yu. Reprinted with permission of the author.

2 ALBANY AMSTERDAM ATLANTA BOCA RATON BOSTON CHICAGO DALLAS DELAWARE DENVER FORT LAUDERDALE HOUSTON LAS VEGAS LOS ANGELES MIAMI NEW JERSEY NEW YORK ORANGE COUNTY ORLANDO PHILADELPHIA PHOENIX SACRAMENTO SHANGHAI SILICON VALLEY TALLAHASSEE TAMPA TOKYO TYSONS CORNER WASHINGTON, D.C. WEST PALM BEACH ZURICH Strategic Alliances with Independent Law Firms BERLIN BRUSSELS LONDON MILAN ROME TOKYO CAN-SPAM Final Rules Enacted: Are You Complaint? It s been nearly five years since Congress passed The Controlling the Assault of Nonsolicited Pornography and Marketing Act, or CAN-SPAM. Delivered with some fanfare in December 2003, CAN-SPAM was supposed to reduce the seeming endless flow of spam. Unfortunately, it hardly appears to have made a dent. Estimates are that spam accounted for 90 to 95 percent of all s sent in Nonetheless, among legitimate marketers, compliance with CAN-SPAM and its subsequent regulations is an important, daily consideration. On May 12, 2008, the Federal Trade Commission (the FTC or the Commission ) issued additional Final Rules, which became effective July 8, These Rules and the related discussion on a number of marketing issues are critical for anyone seeking to remain in compliance. Reviewing the Basics What does CAN-SPAM Cover? CAN-SPAM covers any that has a primary purpose of commercial advertisement or promotion of a commercial product or service. There are exemptions from this broad definition for transactional or relationship messages, including messages that: (1) facilitate, complete, or confirm a commercial transaction; (2) provide warranty, product recall, safety, or security information for a product purchased by the recipient; (3) provide statutorily limited information regarding a continuing purchase; (4) provide information regarding an employment relationship or related benefit plan; and (5) deliver goods or service, such as updates or upgrades, that the recipient is entitled to receive. Primary purpose is a seemingly broad definition, so the FTC has issued guidance on the required analysis. If the message contains only advertising, it has a commercial primary purpose; If the message has advertising and transactional/relationship content, it has a commercial primary purpose if: The recipient would interpret the subject line as containing a commercial advertisement, or the transactional/relationship content does not appear at the beginning of the message; If the message has both advertising and content that is not transaction/relationship, it has a commercial primary purpose if: The recipient would interpret the subject line to mean that the message contains commercial advertising; or The recipient would determine that the primary purpose of the message is commercial advertising, using such factors as placement of the commercial content at the beginning of the message, the proportion of the message dedicated to commercial advertising, and how that advertising is highlighted. Finally, messages that contain solely transactional/relationship content do not have a commercial primary purpose. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 1

3 What does CAN-SPAM require? So, if a message has a commercial primary purpose, what does CAN-SPAM mandate? CAN-SPAM bars (1) false or misleading transmission information, especially referencing header information and the from line, and (2) deceptive subject heading. Further, the message must contain a clear notice of the recipient s ability to opt-out of receiving future messages, and the opt-out mechanism must work for at least 30 days after the message was sent. If the recipient decides to opt out, that opt-out must be effective within 10 days. Thereafter, the sender may never send the recipient another message, unless it receives a subsequent request from the recipient. Finally, the message must contain a clear identification that the message is advertising, and a valid physical postal address for the sender. Sexually Oriented Material. There are special restrictions for messages that contain sexually explicit material. The FTC issues an Adult Labeling Rule under its CAN-SPAM authorization. That regulation requires that the phrase SEXUALLY-EXPLICIT must appear within the first 19 characters in the subject line of any message containing such material. Moreover, the message must be designed to prevent a recipient from viewing the material accidentally. So, when the message is opened, it must only contain: (1) the sexually-explicit warning; (2) a clear and conspicuous identifier stating that the message is a solicitation; (3) a valid opt-out; (4) the sender s valid physical address; and (5) instructions describing how the recipient can access the sexually oriented material. The Final Rule The FTC s new Final Rule covers a variety of areas that have been a longstanding concern among senders. Additionally, the comment issued along with the Final Rule provides the Commission s analysis on a number of additional critical issued. Below is a summary of the Rule and the commentary. Person. In the NPRM, the FTC proposed adding a definition of person, which is a term used throughout the act but undefined. It proposed to use the definition of person adopted in connection with the Telemarketing Sales Rule the term person would mean an individual, group, unincorporated association, limited or general partnership, corporation, or other business entity. The FTC considered excluding non-profit associations from that definition, but ultimately rejected that carve-out. The definition of person the Commission settled upon advances the implementation of CAN-SPAM by clarifying that the term person is broadly construed and is not limited to a natural person. Multiple Senders of Messages. CAN-SPAM defined sender as a person who initiates [a commercial and electronic mail] message and whose product, service, or Internet web site is advertised or promoted by the message. In the NPRM, the FTC proposed amending sender to adequately address the relatively common scenario where multiple marketers use a single message. A common example cited is an from a commercial airline that also contained advertisements or promotions for hotels or car rental companies. The Final Rule defined that multiple senders of a commercial , under certain conditions, may identify one among them as the sender who will be deemed to be the sole sender of a message, or the designated sender. Under the Final Rule, then, the designated sender, but not the other marketers using the same message, must honor opt-out requests made by recipients of the message. Further, the physical address of the designated sender, but not the addresses of the other marketers using the same message, must appear in the message. Before this Rule, under the Act, if multiple senders using a single message met the definition of sender, each would need to provide an opt-out mechanism, a valid physical postal address for each sender would have to appear in the message, and each would be responsible for honoring an opt-out request by a recipient. This was a needlessly complex arrangement that could often lead to unintentional violations of the Act. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 2

4 Instead, under the Final Rule, both telemarketers can designation a sender for purposes of compliance with CAN-SPAM, a person who: (a) meets the Act s definition of sender, i.e., such a person initiates the commercial electronic message in which it advertises or promotes its own goods, services, or internet website; (b) is identified uniquely in the from line of the message; and (c) is in compliance with CAN-SPAM Sections 7704(a)(1), 7704(a)(2), 7704(a)(3)(A)(i), 7704(a)(5)(A), and 16c CFR and These provisions apply to initiators of commercial s and require that the message may not contain false and misleading transmission information or a deceptive subject heading, but must contain a valid postal address, a working optout link, and proper identification of the message s commercial or sexually explicit nature. The NPRM cites one clarifying hypothetical example. If x, y and z are sellers who satisfy the CAN-SPAM s sender definition, and they designate x to be the single sender under the Final Rule, among the three sellers, only x may control the message s content, control its recipient list, or appear in its from line. x need not satisfy all three of these criteria, but no other seller may satisfy any of them. The sellers may use third parties to be responsible for any criteria not satisfied by x. For example, if x appears in the from line, the sellers may use third parties but not y or z to control the message s content and recipient list. Thus, the Final Rule does not eliminate the possibility that a message may have more than one sender. But marketers can use the criteria set forth in the Rule to establish a single sender and CAN-SPAM s compliance burdens. The condition also noted that this rule change could lead illegitimate markers to escape liability under CAN- SPAM. But the FTC believed that the it had taken steps to reduce the likelihood of that abuse. First, marketers in a single message who are not designated senders are still initiators under CAN-SPAM and liable under any other provisions that apply to initiators, such as prohibition against the use of deceptive headers and subject lines and the requirement to include an opt-out link. Second, the Final Rule s definition of sender requires that the designated sender be incompliance with certain initiator provisions of the Act. If the designated sender does not comply with these five initiator responsibilities, all the marketers will be liable as senders, and not just initiators. Safe Harbor for Messages Sent by Affiliates. The FTC considered, but ultimately rejected, a proposal to adopt a safe harbor with respect to opt-out and other obligations for a sender whose product, service or website is advertised by affiliates or third parties. In the FTC s view, affiliates are induced to send commercial messages by sellers seeking to drive traffic toward websites and that sellers generally pay affiliates based on the number of individuals who, directed by the affiliates, ultimately visit a seller s website and/or purchase the seller s product or service. The FTC noted that, with regard to whether a marketer that uses affiliates is an initiator under CAN-SPAM, a person is an initiator if the person originates, transmits, or procures the original or transmission of a message. In a typical affiliate marketing scenario, the affiliate is clearly an initiator, but the marketer does procure the origination of the message. The Acts define procure as intending to pay or provide other consideration to, or induce, another person to initiate a message out of one s behalf. By offering in advance to pay some referral fee, a seller or marketer create an inducement for the affiliate to originate or transmit commercial messages to the public. The seller thus induces another person the affiliate to initiate messages on the seller s behalf. The Final Rule would absolve a marketer who initiated from liability if the marketer takes the prescribed steps to ensure the affiliate complies with CAN-SPAM. Ultimately, the FTC presented against creation of a safe harbor, relying instead on the new definition of sender to give marketers the necessary flexibility to market their products using on their own or in conjunction with other parties, while at the same time preserving the protections afforded to consumers by CAN-SPAM. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 3

5 Messages Sent To Members of Online Groups. The FTC s NPRM asked whether CAN-SPAM should apply to messages sent to members of online groups, more commonly referred to as discussion lists, list servs, mailing lists, and chat groups. Although discussions groups are permission based, or opt-in, they often include advertising in messages sent to subscribers. Many commenters to the Rule suggested that these lists or discussion groups should not be subject to CAN-SPAM, because the burden of the regulations could have a chilling effect on internet free speech. The FTC ultimately concluded that it is not unduly burdensome for online groups to comply with CAN-SPAM. In cases where the primary purpose of sent by and to online groups is not commercial, the Act would not apply. But for those messages with a primary purpose that is commercial, group members should be entitled to the benefits of CAN-SPAM s opt-out provisions. Definition of Transactional or Relationship Message. In its NPRM, the FTC proposed not to modify the CAN- SPAM s definition of transactional or relationship message. After receiving some 50 comments on the issue, the FTC concluded that it would not expand the definition at this time. It did take the opportunity to review a number of categories of transactional or relationship messages and discuss its view on these issues. Legally Mandated Notices. Should an message that contains only a legally mandated notice that is, a communication mandated by state or federal law, be considered a transactional or relationship message. The examples would include messages mandated by the Truth in Lending Act, the Gramm-Leach-Bliley Act, and the US Patriot Act, and this just concerning billing errors and changes in terms or account features. Interestingly, all thirteen commenters on this issue opposed classifying messages that solely contain legally mandated notices as commercial electronic messages. But the Commission declined to take any action on the issue. The Commission believed that, in most cases, the type of legally mandated notices covered by this definition would be categorized as transactional or relationship messages. Those determinations, however, had to be made on a case-by-case basis depending on the specific content and context of such messages. Further, if a message providing a noncommercial legally mandated notice also include commercial content, it must be evaluated under the Commission s primary purpose criteria as a dual purpose message. Debt Collection s. As for dunning notices, commenters urged that debt collection s buyer seller from whom the consumer made a purchase be considered transactional or relationship messages. This should be the case, whether sent by the seller or third party on its behalf. And once again, the Commission declined to modify the definition of transaction or relationship messages to include an express provision addressing debt collection s. The FTC again believed that such a modification is unwarranted because debt collection messages will usually qualify as transactional or relationship messages under the existing definition of the term. The primary purpose of debt collection s is not to advertisement or promotion of a commercial product or service, and, therefore, they generally would not be commercial electronic messages under CAN-SPAM Section 7702(2)(A). The FTC believed that debt collection s from a seller from whom the consumers made a purchase are best understood as completing a commercial transaction that the recipient has previously agreed to enter into with the sender, and thus aren t transactional or relationship messages under Section 7702(17)(A)(i). It makes no difference whether that comes from a third party collecting on behalf of that seller. Copyright Infringement Notices and Market Research. In response to the NPRM, several business organizations urged the FTC to clarify that messages containing copyright infringement notices or marketing an opinion research surveys are neither commercial nor transactional or relationship by nature and thus are wholly except from the Act. As a general matter, the Commission agreed that if a sender has no previous dealings with the GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 4

6 recipient thus lacking the predicate for a message to be deemed transactional and that sender s messages contain only a copyright infringement notice, the messages are also not primary commercial in purpose and thus are not subject to requirements and prohibitions of CAN-SPAM. But where a copyright infringement notice also contains information on how to obtain licensed versions of copyright materials, the FTC s Primary Purpose Rule Provisions governing dual purpose messages may lead to the conclusion that such messages are covered by CAN- SPAM. The same holds true for messages containing opinion and research surveys. These messages may fall outside the scope of the Act, but if any such message seeks to advertise by promoting brand, a company, or a product or service to the recipient, it also may be primarily commercial in purpose and therefore subject to the Act s requirements and prohibitions. Transactions That Do Not Involve an Exchange of Consideration. The NPRM sought comment on CAN-SPAM s application to messages sent pursuant to a relationship in which no consideration passes, such as messages from any free internet service (such as Evite or Shutterfly). The FTC believed that the existing definition of transactional or relationship message includes two categories that could include messages sent pursuant to a relationship in which there has been no exchange of consideration Section 7702(17)(A)(i), under which an electronic mail message the primary purpose of which is to facilitate, complete, or confirm a commercial transaction that the recipient has previously agreed to enter into with the sender is deemed transactional or relationship in nature. And, Section 7702(17)(A)(v), which defines an the primary purpose of which is to deliver goods or services, including product updates or upgrades, that the recipient is entitled to receive under the terms of a transaction that the recipient has previously agreed to enter into with the sender which also qualifies as transactional or relationship in nature. The FTC concluded that, having reviewed the comments, it was persuaded that the term commercial transaction in Section 7702(17)(A)(i) can encompass situations in which there have been no exchange or consideration between the sender and the recipient. Affiliated Third Parties Acting on Behalf of a Person. The FTC also sought comments on the applicability of CAN-SPAM to messages sent by affiliated third parties that are acting on behalf of a party with whom the recipient has transacted business. In the end, the FTC concluded that these messages are adequately covered by existing regulation covering transaction/relationship messages. But it made clear that if the third-party were to also market its own product in its such a message, the primary purpose analysis would be employed. Messages Sent to Effectuate or Complete a Transaction. In developing the Final Rule, the FTC also sought comment on whether an sent to effectuate or complete a negotiation should be considered a transactional/relationship message, and thus fall outside the scope of the Act. It ultimately concluded that is did, requiring no further rule making on its part. It did make clear that an offering to start a negotiation was not exempt, and, if a party terminated the negotiations, an from the sender seeking to restart the message would not be a transactional/relationship message. Messages in the Employment Context. The FTC also considered but ultimately rejected possible rule changes with respect to employment related s. There were several categories of concern to the FTC. First, the commission sought comments on whether s send to employees offering discounts and the like should be considered a communications that provide information directly related to an employment relationship under 7702(17((A)(iv) and whether it mattered that the employee s was provided by the employer. It ultimately concluded that such s constitute a transactional/relationship message under CAN- SPAM. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 5

7 Second, the FTC sought comments on whether an that provides information directly related to an employment relationship or related benefit plan in which the recipient is currently involved is a transactional/relationship message if sent by a third party. It ultimately concluded that messages that would be considered transactional/relationship if sent by an employer would still be so considered if they were sent by a third party on that employer s behalf. Third, the FTC considered how s sent after an offer of employment is tendered but before the recipient s acceptance should be treated. It ultimately concluded that such messages normally would not constitute commercial messages covered by CAN-SPAM, or would be exempt under Section 77902(17)(A)(iv), as messages directly relating to an employment relationship or a related benefit plan. But if the message also included the advertisement or promotion of a commercial product, then the Primary Purpose provisions of the CAN-SPAM rules would apply. Electronic Newsletter Subscriptions and Other Content. The FTC also analyzed the CAN-SPAM implications of electronic subscriptions. So, where a recipient enters into a transaction with a sender that entitles the recipient to receive newsletters or other electronically delivered content in the future, should s delivering those messages be considered transactional/relationship messages? It concluded that such messages were indeed transactional/relationship messages, provided it contains informational or informational and commercial content. An unsolicited newsletter would not be so protected. Valid Physical Address. The Final Rule makes clear that a PO Box will satisfy the valid physical postal address requirement. It provides that a valid physical postal address means the sender s current street address, a Post Office box the sender has accurately registered with the US Postal Service, or a private mailbox the sender has accurately registered with a commercial receiving agency that is established pursuant to US Postal Service regulations. Conclusion There are still plenty of potential pitfalls when applying CAN-SPAM to real life marketing situations. It pays to remain careful and ensure steps are taken to avoid being targeted as a spammer. This GT Alert was written by Luis Salazar, a shareholder in Greenberg Traurig s Miami office and a member of the firm s Data Privacy and Security Law Taskforce. Questions about this information can be directed to Mr. Salazar at salazarl@gtlaw.com or GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 6

8 Albany Amsterdam Atlanta Boca Raton Boston Chicago Dallas Delaware Denver Fort Lauderdale Houston Las Vegas Los Angeles Miami New Jersey New York Orange County Orlando Philadelphia Phoenix Sacramento Shanghai Silicon Valley Tallahassee Tampa Tysons Corner Washington, D.C West Palm Beach Zurich This Greenberg Traurig Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer s legal qualifications and experience. Greenberg Traurig is a trade name of Greenberg Traurig, LLP and Greenberg Traurig, P.A Greenberg Traurig, LLP. All rights reserved. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW - 7