BILL ANALYSIS                                                                                                                                                                                                    






                           SENATE JUDICIARY COMMITTEE
                        Senator Ellen M. Corbett, Chair
                           2007-2008 Regular Session


          AB 2950                                                A
          Assembly Member Huffman                                B
          As Amended June 11, 2008
          Hearing Date: June 24, 2008                            2
          Business and Professions Code                          9
          BCP:jd                                                 5
                                                                 0

                                     SUBJECT
                                         
               Commercial e-mail messages: Falsity and Deception

                                   DESCRIPTION  

          Current law provides that it is unlawful for any person or  
          entity to advertise in a commercial e-mail advertisement  
          either sent from California or sent to a California e-mail  
          address if the e-mail contains or is accompanied by a  
          third-party's domain name without permission.  This bill  
          would add third party e-mail addresses to the prohibition,  
          and state that nothing may be construed to affect  
          comparative advertising that references domain names.

          This bill would also:
                 define header information;
                 provide that venue is appropriate in any county in  
               which the recipient of the commercial e-mail message  
               resides;
                 allow a district attorney or a city attorney to  
               bring an action under California's spam law, and allow  
               the district attorney or city attorney, if the  
               prevailing plaintiff, to recover reasonable attorney's  
               fees and costs;
                 specify a three-year statute of limitations; and
                 codify the intent of the Legislature that the  
               section, which prohibits falsity and deceptions in  
               commercial e-mail messages, shall operate within the  
               exception to federal preemption to the full extent  
               permitted by the CAN-SPAM Act of 2003.

                                                                 
          (more)



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                                    BACKGROUND  

          In 2003, SB 186 (Murray, Ch. 487, Stats. 2003) banned the  
          sending of spam (unsolicited commercial e-mail) in  
          California, and created a private right of action that  
          allowed the recipient or service provider to bring an  
          action against violators for actual and liquidated damages.  
           Before SB 186 could take effect, Congress enacted the  
          CAN-SPAM Act of 2003 that allowed for the sending of spam  
          as long as the sender was identified and the recipient was  
          able to opt-out, as specified.   CAN-SPAM's pre-emption  
          clause further stated:

            This Act supersedes any statute, regulation, or rule of  
            a State or political subdivision of a State that  
            expressly regulates the use of electronic mail to send  
            commercial messages, except to the extent that any such  
            statute, regulation, or rule prohibits falsity or  
            deception in any portion of a commercial electronic  
            mail message or information attached thereto.

          Thus, while most of SB 186 was pre-empted, the provisions  
          that regulated falsity or deception in commercial e-mails  
          were retained.  In response to the partial pre-emption of  
          California's anti-spam law, Senator Murray authored SB 1457  
          (Ch. 571, Stats. 2004), which sought to modify California's  
          anti-spam law to conform to the federal CAN-SPAM exemption.  
           The Senate Floor Analysis for SB 1457 notes that the bill  
          sought to "create[] a 'stand-alone' code section for  
          falsified e-mails, including penalties, to avoid confusion  
          as to what parts of existing state law are preempted by  
          federal law and what parts remain viable."  That  
          stand-alone section, Businesses and Professions Code  
          Section 17529.5, sought to regulate false and deceptive  
          e-mail and specifically allowed the attorney general,  
          e-mail service provider, or recipient to bring an action  
          for violation of the section and recover attorney's fees  
          and costs.

          This bill would expand that section by allowing a district  
          attorney or city attorney to bring an action for violation,  
          allow those parties to receive reasonable attorney's fees  
          and costs, specify that venue is appropriate in any county  
          in which the recipient of an e-mail message resides or  
          where appropriate under existing law, define header  
                                                                       




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          information, and prohibit the sending of a commercial  
          e-mail containing a third party's e-mail address without  
          their permission.

                             CHANGES TO EXISTING LAW
           
          1.    Existing law  provides that it is unlawful for any  
            person or entity to advertise in a commercial e-mail  
            advertisement either sent from California or sent to a  
            California e-mail address if: (1) the e-mail contains or  
            is accompanied by a third-party's domain name without  
            permission; (2) the e-mail contains or is accompanied by  
            falsified, misrepresented, or forged header information,  
            as specified; or (3) the e-mail has a subject line that a  
            person knows would be likely to mislead a recipient,  
            acting reasonably under the circumstances, about a  
            material fact regarding the contents or subject matter of  
            the message.  (Bus. & Prof. Code  17529.5(a).)

             This bill  would revise the first prohibition to instead  
            apply to e-mails that contain or are accompanied by a  
            third-party's domain name or e-mail address without the  
            permission of the third party.   This bill  would also  
            state that nothing in the section may be construed to  
            affect comparative advertising that references domain  
            names.

             This bill  would define "header information" as the  
            source, destination, and routing information attached to  
            an electronic mail message, including the originating  
            domain name and originating electronic mail address, and  
            any other information that appears in the line  
            identifying, or purporting to identify, a person  
            initiating the message.

             This bill  would additionally allow a district attorney or  
            a city attorney to bring an action under the above  
            provision, and allow the district attorney or city  
            attorney, if the prevailing plaintiff, to recover  
            reasonable attorney's fees and costs.

          2.    Existing law  specifically permits the attorney  
            general, an electronic mail service provider, or a  
            recipient of an unsolicited commercial e-mail  
            advertisement to bring an action for violation of the  
                                                                       




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            above prohibition, and provides that those parties, if  
            the prevailing plaintiff, may recover reasonable  
            attorney's fees and costs. (Bus. & Prof. Code   
            17529.5(b)(1)(A), (C).)

             Existing law  authorizes the recovery of actual damages,  
            liquidated damages of $1,000 for each unsolicited  
            commercial e-mail up to $1,000,000, or both. (Bus. &  
            Prof. Code  17529.5(b)(1)(B).)

             This bill  would provide that venue is appropriate in any  
            county in which the recipient of the commercial e-mail  
            message resides or in any county appropriate under  
            current law (Code Civ. Proc  392 et seq.).  

             This bill  would provide that any action to enforce a  
            cause of action pursuant to this section shall be  
            commenced within three years after the cause of action  
            accrued.  No cause of action barred under existing law on  
            the effective date of this section shall be revived by  
            its enactment.
             
            This bill  would codify the intent of the Legislature that  
            the section, which prohibits falsity and deceptions in  
            commercial e-mail messages, shall operate within the  
            exception to federal preemption to the full extent  
            permitted by the CAN-SPAM Act of 2003 (17 U.S.C.   
            7707(b).) and any other provision of federal law.
          





                                     COMMENT
           
          1.    Stated need for the bill  

            According to the author,

               [E]xisting laws have not stopped unlawful spam; in  
               fact, the volume of spam has increased since  
               CAN-SPAM.  Filters have not proven effective, in no  
               small part because spammers use fraudulent and  
               deceptive means to bypass filters and hide their  
                                                                       




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               identity.  A significant amount of spam is false, or  
               deceptive, either technically or in terms of the  
               advertised content.  Advertisers benefit from, but  
               deny liability for, their advertising agents'  
               unlawful activities.  And recipients bear the costs  
               of spam, not the spammers/advertisers.

               There has been litigation in California and federal  
               courts under  17529.5, but ambiguities and  
               loopholes in the law make it too easy for  
               spammers/advertisers to evade their liability,  
               particularly when defendants lie under oath and  
               judges do not fully understand the technological  
               issues.

          2.    Expanding and clarifying prohibition on e-mail  
            advertising that contains or is accompanied by a  
            third-party's domain name without their permission  

            Under existing law, it is unlawful for any person or  
            entity to advertise in a commercial e-mail advertisement  
            either sent from California or sent to a California  
            e-mail address if the e-mail address contains or is  
            accompanied by a third-party's domain name without the  
            permission of the third party.  This bill would  
            additionally apply that prohibition to e-mails that  
            contain an e-mail address without the permission of the  
            third party.  As e-mail addresses must include a domain  
            name, this addition provides a more specific example of  
            the current prohibition as it relates to domain names and  
            has the effect of requiring consent of a third party  
            before including their e-mail address in an e-mail  
            advertisement (provided that the new prohibition is not  
            preempted by CAN-SPAM).  As with the prohibition on  
            including domain names, the new prohibition on e-mail  
            addresses would apply to the text included in the body of  
            an e-mail, thus, an advertiser would arguably have to  
            receive the consent of the holder of each included third  
            party e-mail address prior to including that address. 

            To ensure that the prohibition does not interfere with  
            legitimate comparative advertising, the bill would add  
            that nothing in the section may be construed to affect  
            comparative advertising that references domain names.   
            That clarification is important as the domain name of a  
                                                                       




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            competitor may be used for purposes of comparative  
            advertising - a valid use that may not be false and  
            deceptive.  To conform to recent amendments, that  
            exemption should also include e-mail addresses used for  
            purposes of comparative advertising:

             Suggested amendment  :
                 
                 On page 5, line 20 after names insert:

            or e-mail addresses

            The author should consider other situations in which an  
            e-mail address may be included in an advertising e-mail  
            (such as the address of the local Better Business Bureau  
            or organizations that allow a consumer to report fraud),  
            and explore whether other exemptions are required.  Those  
            same issues could arise under existing law if the  
            advertisement provides a link to those organizations.    

          3.    Venue provision would ensure that an action may be  
            brought in the place where the recipient of the e-mail  
            message resides  

            Under existing law, venue (the location in which a case  
            may be heard) is proper in the county in which the cause  
            or some part of the cause arose for actions for recovery  
            of a penalty or forfeiture imposed by statute, in the  
            county in which an injury to person or personal property  
            occurs, where the defendants reside, or in other counties  
            authorized under the Code of Civil Procedure.  (Code Civ.  
            Proc.  393; 395.)   

            This bill would augment existing venue provisions by  
            providing that venue is also appropriate in any county in  
            which the recipient of a commercial e-mail message  
            resides.   Thus, if a company sends a false or misleading  
            e-mail in violation of California's spam law, this bill  
            would allow the recipient, electronic mail servicer  
            provider, Attorney General, district attorney, or city  
            attorney to bring an action in the county in which the  
            recipient resides.  While this provision clarifies the  
            question of where, under the existing venue statutes, a  
            cause of action arises when the violation is the sending  
            of an e-mail over the internet, the result would be to  
                                                                       




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            subject an advertiser to civil actions (some brought in  
            small claims court) in potentially remote counties.   
            Considering the volume of commercial e-mails that could  
            be sent out by an e-mail advertising firm hired by a  
            company, this provision could subject that company to  
            venue throughout the State of California.  This result is  
            unavoidable if the company chooses to advertise through  
            random spam.




          4.    Provision adding a three year statute of limitations  
            would codify the current statute of limitations under  
            existing law  

            Under existing law, a four-year statute of limitations  
            applies if an action is brought for unfair competition  
            under Business and Professions Code Section 17200 (which  
            includes any act prohibited by the chapter containing  
            California's spam law).  Alternatively, an action  
            specifically commenced under Section 17529.5 is subject  
            to the three year default statute of limitations  
            contained in Section 338(a) of the Code of Civil  
            Procedure. (The four year statute of limitations  
            contained in Section 17208 does not apply to actions  
            brought pursuant to 17529.5 as that limitations period  
            only applies for violations of the chapter including  
            17200.)  

            To clarify and restate the existing statute of  
            limitations for violations of California's spam law, this  
            bill would specifically codify a three-year statute of  
            limitations for violations of Section 17529.5.  That  
            three-year period is consistent with the statute of  
            limitations currently required under Code of Civil  
            Procedure Section 338(a).

          5.    Allowing a district attorney or city attorney to bring  
            an action would expand the parties that may bring an  
            action for violation

             Current law limits the parties that may bring an action  
            for a violation of California's spam law to the Attorney  
            General, an electronic mail service provider, or the  
                                                                       




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            actual recipient of an unsolicited commercial e-mail  
            advertisement.   Those individuals may seek actual or  
            liquidated damages in the amount of $1,000 for each  
            unsolicited commercial e-mail sent in violation of the  
            section.

            This bill would additionally allow a district attorney or  
            city attorney to bring an action for violations, and  
            authorize those individuals (if prevailing plaintiffs) to  
            recover reasonable attorney's fees and costs.  As those  
            individuals could bring actions for enforcement when the  
            recipient or service provider is unable or cannot afford  
            to do so, these provisions would arguably further deter  
            the sending of unlawful spam.

          6.    Clarifying the definition of header information  

            In the context of e-mail, header information is generally  
            the information that precedes the actual body of the  
            e-mail itself that indicates the sender, recipient, and  
            other information about the source of the e-mail.  Under  
            existing state law, it is unlawful to advertise in a  
            commercial e-mail either sent from California or sent to  
            a California e-mail address if the e-mail advertisement  
            contains or is accompanied by falsified, misrepresented,  
            or forged header information, as specified.  
            To clarify what exactly constitutes an e-mail header,  
            this bill would codify the definition of "header  
            information" from the federal CAN-SPAM Act, thus defining  
            header information as the source, destination, and  
            routing information attached to an electronic mail  
            message, including the originating domain name and  
            originating electronic mail address, and any other  
            information that appears in the line identifying, or  
            purporting to identify, a person initiating the message.   
            That definition provides uniformity with federal law, and  
            reflects the components of an e-mail message that are  
            generally considered to be the header of the e-mail.

          7.    Opposition's arguments

             ValueClick, Inc., Hydra LLC, and Connexus Corporation, in  
            opposition, suggests three amendments to provide  
            consistency with federal law regarding spam e-mails.   
            Although none of the amendments address language added by  
                                                                       




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            the bill, the opposition maintains that the suggested  
            amendments are germane because the bill expands the  
            provisions under which there is liability (for example,  
            expanding venue increases the location in which an action  
            may be brought).  The suggested amendments are as  
            follows:

             (1)                                     Defining  
               materially false or misleading (in the context of  
               e-mail headers) as the definition under federal law  
               (CAN-SPAM).
             (2)  Stating that a person may not recover damages if  
               they engaged in conduct that induced the sending of  
               the commercial e-mail advertisement or otherwise  
               increased the quantity of commercial e-mail received  
               by that person.
             (3)  State that in alleging a violation under this  
               section, a party must state with particularity the  
               circumstances concerning the materially false or  
               misleading information.

            While those amendments may provide greater uniformity  
            with federal law, they also provide less protection than  
            current law, and less potential liability for e-mail  
            advertisers.

          Support:  Privacy Rights Clearinghouse; California Alliance  
                 for Consumer Protection; one individual

          Opposition:  ValueClick, Inc.; Hydra LLC; Connexus  
          Corporation

                                         
                                    HISTORY
           
          Source:  Author

          Related Pending Legislation:  None Known

          Prior Legislation: SB 186 (Murray, Ch. 487, Stats. 2003),  
                         banned the sending of spam in California,  
                         and created a private right of action that  
                         allowed the recipient or service provider to  
                         bring an action against violators for actual  
                         and liquidated damages.
                                                                       




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                         SB 1457 (Murray, Ch. 571, Stats. 2004),  
                         modified SB 186 to conform to recently  
                         enacted federal law.

          Prior Vote:  Assembly Business & Professions Committee  
          (Ayes 6, Noes 2)
                    Assembly Judiciary Committee (Ayes 7, Noes 2)
                    Assembly Floor (Ayes 47, Noes 20)

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