FTC Issues Final Rule Under CAN-SPAM Act Defining Commercial Primary-Purpose s: What it Means for Associations

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1 February 2005 Bulletin If you have questions or would like additional information on the material covered in this Bulletin, please contact one of the authors: Henry A. Hart Robert H. Jackson or the Reed Smith attorney with whom you regularly work, or any of the following: David C. Evans Walter A. Marston (Richmond) Douglas J. Wood (New York) FTC Issues Final Rule Under CAN-SPAM Act Defining Commercial Primary-Purpose s: What it Means for Associations On November 16, 2004, the Federal Trade Commission issued a Final Rule governing how to determine whether the primary purpose of an message is commercial so as to subject the to the CAN-SPAM Act of The requirements of that Act were explained in detail in Reed Smith Bulletin No (December 2003) 1 and are essentially the following: include in the , the sender s valid physical postal address; include in the a conspicuous opt-out feature; that opt-out feature must be functioning for at least 30 days after the is sent; keep the list of addresses which respond with an objection, and do not send to an objecting recipient any of a type objected to more than 10 business days after receipt of such objection; do not sell an address from which you have received an objection; and include in the a conspicuous identification that the is an advertisement or solicitation. The effective date of the FTC Final Rule is March 28, 2005; 2 however, there is no reason for associations not to begin tailoring their operations now under the guidance of the Final Rule. Associations which send s to their members and other persons should familiarize themselves with this Final Rule, and structure their s the best they can so that they are either clearly exempt from the rule, or are identified by the association as being covered by the rule and are then structured to comply with the rule. This bulletin will first summarize the general rules set forth in the FTC Final Rule for determining whether an has a commercial primary purpose so as to be covered by the rule; we will then give examples of typical s sent by associations and will discuss how the Final FTC Rule would apply to such s. This bulletin is presented for informational purposes and is not intended to constitute legal advice. Reed Smith LLP All Rights Reserved. Reed Smith refers to Reed Smith LLP, a limited liability partnership formed in the state of Delaware. Summary of FTC Final Rule: The Four Categories The FTC expressly declined to adopt a blanket rule that all s from a non-profit association to its members are not commercial. Instead, the FTC Final Rule divides s into four categories, and then applies a separate rule for each category to determine whether it is a commercial primary-purpose . These categories and their resulting rules are as follows: LONDON NEW YORK LOS ANGELES SAN FRANCISCO WASHINGTON, D.C. PHILADELPHIA PITTSBURGH OAKLAND PRINCETON NORTHERN VA WILMINGTON NEWARK MIDLANDS, U.K. CENTURY CITY RICHMOND r e e d s m i t h. c o m

2 Category 1 - Purely Commercial The CAN-SPAM Act Applies. Where an consists exclusively of a commercial advertisement or promotion of commercial products or services, not surprisingly the primary purpose of the shall be deemed to be commercial. Category 2 - Exclusively Transactional or Relationship The CAN-SPAM Act Does Not Apply. Where an consists exclusively of transactional or relationship content, not surprisingly, the will not be treated as a commercial primary purpose . Note that a transactional or relationship content includes in pertinent part for associations, an which facilitates, completes or confirms a commercial transaction that the recipient has previously agreed to enter into with the sender. In particular, with respect to a subscription, membership account or comparable ongoing commercial relationship involving the purchase or use of products or services offered by the sender, a transactional or relationship content is one which provides (a) notification concerning a change in terms or features, (b) notification of a change in the recipient s standing or status, or (c) account balance information or other type of account statement at regular periodic intervals. Category 3 - Content that is both Commercial and Transactional or Relationship in Nature. Such content will not be deemed commercial primary-purpose content if it meets both of the following criteria: The subject line does not imply that the message contains commercial content; and The transactional or relationship content appears in whole or substantial part at the beginning of the body of the message. Category 4 - Content Consisting of Both Commercial Content and Other Content that is not Transactional or Relationship in Nature. Such an will not be treated as commercial primary purpose if both of the following criteria are met: The subject line does not imply that the content is commercial; and The net impression of the body of the message is not commercial. Factors relevant to a commercial net impression are whether the commercial content in whole or substantial part is placed at the beginning of the body of the message; what proportion of the message is dedicated to commercial vs. non-commercial content; and how color, graphic, type size and style are used to highlight commercial content. Other Aspects of the FTC Final Rule of Particular Relevance to Associations Periodicals The FTC Final Rule at page 33 did address whether periodicals sent by would be deemed commercial primary-purpose s. The determining factor is whether such an periodical is sent pursuant to a subscription. Where a periodical is sent by pursuant to a subscription, it will be a transactional content , and therefore will not be covered by the CAN-SPAM Act even when the periodical contains advertisements. Therefore, where an association charges a subscription fee for an periodical, such s will not be covered by the rule. What is not clear under the FTC Rule and preamble thereto is whether periodicals which are sent by to all members who pay dues, without any additional subscription amount for the periodical, will be deemed to be sent pursuant to subscription so as to be exempt from the rule. An association may want to consider modifying its membership agreement to specify whether or not dues-paying members are entitled to receive periodicals by . Such a clause would seem to place those messages more clearly in the category of transactional or relationship messages that are not covered by the rule. On the other hand, the transmission of an association s periodical by to non-members would appear to constitute a commercial message that is subject to the FTC s rule, unless sent pursuant to a subscription agreement

3 Links to Sponsors Also of relevance to associations are the statements at pages 54 and 63 of the preamble to the FTC Final Rule to the effect that a single link in the body of an message to a commercial website might well cause the to constitute a commercial primary purpose . Application of Final FTC Rule to Typical Association s Associations should review their practices in light of the FTC Final Rule. Where possible to do so without frustrating the intent of the association, the association should structure an so that it clearly falls outside the coverage of the CAN-SPAM Act under the FTC Final Rule. Where it is not possible to do so, then the Association should recognize this fact and take those steps necessary to cause the to comply with the CAN-SPAM Act (i.e., include opt-out feature, postal address, etc.). Set forth below is a listing of typical association s, followed by a discussion of whether they would be covered by the CAN-SPAM Act under the FTC Final Rule: Meeting Materials An to Members Providing Only Notice of Annual Business Meeting and Perhaps Voting Materials, but Making no Reference to Registration Fees for the Meeting in the Subject Line or Body of the Such an has no commercial content and would clearly not be covered by the rule. An to Members Providing Only Materials Containing Meeting Registration and Fees, and no Materials Concerning Notice of the Business Meeting or any Voting Materials Such an would be covered by the rule. An to Members Providing both Registration Fee Materials and Materials Concerning Business Meeting Notice and Voting Such an falls under either Category 3 or Category 4 of the FTC Rule [It contains both commercial content (i.e., the registration fee information) and noncommercial content ( i.e., the business meeting and voting information); but it is not clear whether the non-commercial content is transactional ]. To be safe, the association should structure the e- mail so that it would not be treated as a commercial primary-purpose under either the Category 3 test or the Category 4 test. To do so, the would have to meet all of the following conditions: The subject line concerns the business meeting notice and voting materials for the business meeting, and not the registration fees for the meeting; The content concerning the business meeting notice and voting appears in whole or substantial part at the beginning of the body of the message; and The body of the text of the meets the net impression test of not being commercial; such test would clearly be met if the first portion of the text concerned the business meeting notice and voting, and such portion of the text was at least 51 percent of the total text and was highlighted in color, graphics, type size and/or style so as to be more prominent than the registration materials. Bulletin Materials An to Members Apprising them of Legislative Developments in the Professional Field of Interest to Association Members, without Promotion of Sale of Products or Services Offered by the Association or Third Parties Such an has no commercial content and will not be subject to the CAN- SPAM Act. Same Bulletin as described in prior paragraph, except that a Reference is Added to Products and/or Services Sold by the Association or Third Parties Again, such an falls under either Category 3 or Category 4 of the FTC Final Rule; and to be safe, the association should structure the so - 3 -

4 that it would not be treated as a commercial primary-purpose under either the Category 3 test or the Category 4 test. To do so, the would have to meet all of the following conditions: The subject line concerns the bulletin, and not the advertised products or services; The editorial content of the bulletin appears in whole or substantial part at the beginning of the body of the message; and The body of the text of the meets the net impression test of not being commercial; such test would clearly be met if the first portion of the text consisted of the bulletin, and such portion of the text was at least 51 percent of the total text and was highlighted in color, graphics, type size and/or style so as to be more prominent than the advertisement for goods or services. Same as Bulletin (as described above), but with a Link to a Sponsor Commercial Website This also falls in Category 3 or Category 4 of the FTC Rule. However, the preamble to the FTC Final Rule suggests that a single link to a commercial website will make such an a commercial primary-purpose under the net impression test. Therefore, such an would be covered by the CAN-SPAM Act. Periodicals/Newsletters The preamble to the FTC Final Rule indicates that if a periodical such as a newsletter sent by is sent pursuant to a subscription, it is not covered by the Rule, even if the newsletter contains advertising. Therefore, if a subscription fee is paid for the newsletter, over and above dues, the should be excluded from the CAN-SPAM Act, regardless of whether the newsletter has advertising. However, the preamble is not clear as to whether an newsletter which is sent to members as part of dues without any additional payment over and above dues, will be deemed to be sent pursuant to a subscription so as to be excluded from the scope of the CAN-SPAM Act. A strong argument could be made that such a newsletter is still pursuant to subscription (and therefore exempt as a transactional or relationship message) if members were told at the time of joining or renewing that one of the rights of membership was the subscription to such newsletter. The argument for exclusion would be even stronger if members were told that a specified portion of their dues was for the magazine subscription, or if there was a subscription price for non-members. Dues Renewal Notice If such a Dues Renewal Notice is purely transactional, it will be excluded from the CAN-SPAM Act. A transactional or relationship message is defined in pertinent part for associations to include an 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; or, with respect to a subscription or membership, is to provide a notification concerning a change in terms, a notification of a change in the recipient s standing or status, or at regular periodic intervals, account balance information. An which merely sets forth a past due amount owed for dues for a membership which has been applied for or renewed, is purely transactional and is not covered by the CAN-SPAM Act. An which merely sets forth a dues notice for renewal of a membership which has not yet renewed, would appear to be purely commercial, and therefore subject to the CAN-SPAM Act; and An which advises a member when his current membership will expire and includes a Dues Renewal Notice to avoid expiration, would appear to be a combination of commercial content and transactional content (Category 3 under the FTC Final Rule). To avoid having such an treated as a commercial primary-purpose which is subject to the CAN-SPAM Act, the would have to meet both of the following criteria: The subject line would not refer to commercial content (i.e., it should refer to potential expiration of the member relationship and not to dues renewal); and - 4 -

5 The portion of the text which addresses potential membership expiration would be located at the beginning of the message, and the dues renewal statement would be located thereafter. An which is sent to an individual who is no longer a member asking them to come back as a member would appear to be a purely commercial purpose , which is subject to the CAN-SPAM Act. * * * * * * * Reed Smith, a leading global law firm with nearly 1,000 lawyers located in 14 U.S. and two U.K. cities, represents Fortune 100 as well as mid-market and emerging companies. Clients include technology companies and entrepreneurs, financial services firms, life sciences companies and health care providers and insurers, communications companies, manufacturers, universities, non-profit organizations, real estate developers, and municipalities throughout the United States, the United Kingdom, and in 40 other countries. For more information, please visit reedsmith.com. 1 2 Bulletin No may be found on the Reed Smith website at On January 12, 2005, the FTC extended the effective date from February 18, 2005 to March 28,