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Client Alert: New California Law Prohibits
Unsolicited "Commercial" E-mail (10/03)

Everyone who uses
electronic mail for business purposes should take immediate notice of
California's newly-enacted Senate Bill 186, which bans unsolicited commercial
e-mail sent either from or to California. Although intended as an
"anti-spam" statute, Senate Bill 186 goes far beyond those annoying
bulk e-mails promoting get-rich-quick schemes or weight-loss gimmicks. Instead,
Senate Bill 186 broadly prohibits sending even a single e-mail advertisement or
promotional message from California, or to a California e-mail address, unless
the sender has first received the addressee's direct, opt-in consent to receive
such messages. This new statute has far-reaching implications for the use of
e-mail to develop or promote business, and it will require prompt action by
companies both inside and outside California to avoid potentially substantial
liability.

On a related note, companies that send
business-related e-mail messages from or to the countries in the European
Union should be aware that each member state in the EU is obligated by
October 2003 to implement the Electronic Communications Directive that
imposes similar restrictions on the use of e-mail for commercial purposes.
Morrison & Foerster's domestic and
international offices are working jointly to assist clients in complying with
this new legislation in the EU member states, as well as Senate Bill 186.

Key Facts You
Should Know About Senate Bill 186

1. Senate
Bill 186 Does Apply to People and Entities Located Outside California

Senate Bill 186 amends
California's Business and Professions Code to prohibit anyone from sending an
"unsolicited commercial e-mail advertisement" either (1) from
California or (2) to a "California electronic mail address."
(Business and Professions Code §17529.2) In other words, a person or
company located outside California would violate Senate Bill 186 by sending an
"unsolicited commercial e-mail advertisement" to an e-mail address
based in California.

2. Senate
Bill 186 Imposes a $1,000 Penalty for Each Improper E-Mail Message, Up to
$1,000,000 per Incident

This new statute provides
for liquidated damages of one thousand dollars ($1,000) for each unsolicited
e-mail message, up to a total of one million dollars ($1,000,000) for each
incident in which similar messages are sent. Id. at
§17529.8(a)(1)(B), §17529.1(j). In addition to these substantial
penalties, the recipient of such a message can recover his or her reasonable
attorneys' fees and costs in litigating the violation of this statute. Id.
at §17529.8(a)(2). This provision for attorneys' fees and costs is likely
to make these claims more attractive to plaintiffs' attorneys.

It may be possible to
reduce the amount of these liquidated damages if the court finds that a
defendant took due care in implementing policies reasonably designed to comply
with this statute. In that case, the court may reduce the liquidated damages to
a maximum of one hundred dollars ($100) per e-mail message, up to a maximum of
one hundred thousand dollars ($100,000) per incident. Id. at
§17529.8(b). Again, the defendant would remain liable for the plaintiff's
attorneys' fees and costs as well.

Apart from any penalties
awarded to each recipient of the message, the defendant could find itself
liable to its e-mail service provider for liquidated damages of fifty dollars
($50) per e-mail message, up to twenty-five thousand dollars ($25,000) per
day, for violating the service provider's policy on unsolicited e-mail
advertisements. Id. at §17538.45(f)(1). Like the recipient, the
service provider also would be able to recover its attorneys' fees and costs
from the defendant. Id. at §17538.45(f)(2).

3. Senate
Bill 186 Bans More than Just "Spam"

As explained above, Senate
Bill 186 bans "unsolicited commercial e-mail advertisements." Id.
at §17529.2. These terms are defined to include much more than just
"spam" e-mail.[1]

First, a "commercial
e-mail advertisement" includes any e-mail message intended to promote or
advertise goods or services. Id. at §17529.1(c). This term is not
limited to bulk or "spam" e-mail messages but, as defined, would
extend more broadly to any e-mail message sent to encourage a prospective
customer to do business with you by promoting your company's products or
services.

Second, a commercial e-mail
advertisement is "unsolicited" if it is sent to a recipient (1)
with whom you do not have a pre-existing or current business relationship[2] and (2) who has not
provided "direct consent" to receive this type of e-mail
correspondence from you. Note that "direct consent" requires more
than just allowing the recipient to "opt out" of receiving future
e-mail messages, which currently is the most common approach. Instead, Senate
Bill 186 would require the recipient to expressly consent to receive
these "commercial e-mail advertisements" from you.

Finally, although Senate
Bill 186 creates an exception for recipients with whom you have a pre-existing
or current business relationship, it also changes the rules for sending
commercial e-mail messages to these recipients as well. First, Senate Bill 186
requires the recipient to be provided with an opportunity to "'opt out'
from receiving further commercial e-mail advertisements by calling a toll-free
telephone number or by sending an 'unsubscribe' e-mail to the advertiser
offering the products or services in the commercial e-mail advertisement."
Id. at § 17529.1(l). Note that, as drafted, it is unclear whether
it is now necessary to provide both a toll-free telephone number and
an 'unsubscribe' e-mail mechanism for each promotional e-mail message to
current customers and business partners, in order to ensure that this exception
for "pre-existing or current business relationships" applies. In
addition, the requirement that the 'unsubscribe' notice be sent to the
advertiser offering the product or service is inconsistent with current
practice, in which opt-out messages are typically sent to the sender of the message
(not the advertiser itself). Similarly, the common approach of providing a link
to a webpage with an opt-out mechanism also would appear to be insufficient to
fit within this exception for "pre-existing and current business
relationships." Thus, Senate Bill 186 is likely to require modified
procedures even for e-mail communications sent under the exception for
pre-existing or current business relationships.

4. Senate
Bill 186 Becomes Effective January 1, 2004

Senate Bill 186 will go
into effect on January 1, 2004, which provides only about three months for
business users of e-mail to implement procedures to comply with this new law.

Major Implications
of Senate Bill 186

Senate Bill 186 will
require companies to reevaluate even commonplace uses of e-mail for business
development or promotional purposes. As an illustration, perhaps you meet a
prospective customer at a conference and want to follow up with an e-mail
message reiterating the goods or services offered by your company. Unless the
prospective customer has expressly consented to receive this information by
e-mail -- and, to be on the safe side, you would want the consent made in
writing -- your e-mail message probably would be considered an
"unsolicited commercial e-mail advertisement" under Senate Bill 186.
After all, Senate Bill 186 contains no exception for individual e-mail messages
sent to a recipient with whom you are acquainted, nor to someone who gives you
a business card or contact information that happens to include his or her
e-mail address. For purposes of Senate Bill 186, the only difference between an
individual "unsolicited" e-mail message and a bulk "spam"
message is the level of liquidated damages that could be imposed.

The geographic scope of
Senate Bill 186 is also important to understand, particularly for
non-California businesses that may assume this law does not apply to them. The
fact is that Senate Bill 186 prohibits such e-mail messages from being sent to
any "California electronic mail address," regardless of whether the sender
is located outside California or even outside the United States. Moreover,
"California e-mail address" is broadly defined to include any e-mail
address of a California resident, any e-mail address ordinarily accessed from a
computer located in California, or any e-mail address maintained by a service
provider that sends the billing for that account to an address in California. Id.
at §17529.1(b). Unless a non-California business can be certain that an
"unsolicited commercial e-mail advertisement" is being sent to an
e-mail address that is not held by a California resident, not ordinarily
accessed in California, and not billed to a California address, there is little
alternative to complying with Senate Bill 186. (Businesses located in
California, of course, must comply with Senate Bill 186 regardless of whether
an e-mail message is being sent inside or outside California.)

Practical Advice to
Prepare for Senate Bill 186

Begin developing procedures to
comply with Senate Bill 186 without delay, as the law goes into effect on
January 1, 2004.

If you routinely send marketing
or promotional e-mail communications to recipients with whom you do not
have a pre-existing or current business relationship, seek their express
consent prior to the end of this year to continue receiving this
information by e-mail.

For promotional e-mail
communications to recipients with whom you do have a pre-existing or
current business relationship, the most conservative approach would be to
provide both a toll-free telephone number and a mechanism for
sending you an "unsubscribe" e-mail message to opt out of
receiving further messages.

If you retain a third party to
send promotional e-mail messages on your behalf, you may be liable under
Senate Bill 186 for causing "unsolicited commercial e-mail
advertisements" to be sent. Id. at §§17529.2,
17529.1(i). Therefore, consult with counsel if
you plan to use third parties to send such e-mail communications on your
behalf.

Senate Bill 186 makes the
buying or renting of e-mail lists a very high-risk activity, as it
arguably may require either (1) a pre-existing or current business
relationship between the recipient and the specific "advertiser"
sending the message or (2) the recipient's direct authorization to receive
promotional e-mail messages from that advertiser. See id. at
§§17529.2, 17529.1(o).

Make sure that your company's
salespeople, executives, marketing staff members, and other employees who
initiate contacts with prospective customers and business partners are
aware of the limitations placed by Senate Bill 186 on the use of e-mail to
promote the company.

As drafted, absent a
pre-existing or current business relationship, Senate Bill 186 requires
direct consent from each addressee of the e-mail communication, and
contains no mechanism for allowing a company to consent to have such
communications sent to its corporate representatives. Id. at
§§17529.2, 17529.1 (d), (m), (o). The most conservative approach
is to obtain direct consent from each individual recipient of the e-mail
communication. Alternatively, if individual direct consent is not
feasible, you may consider seeking the company's written agreement to have
these e-mail communications sent to designated corporate representatives,
along with the company's written representation and warranty that it has
obtained the express written consent of these corporate representatives to
receive these e-mail communications from you.

If your company sends e-mail
advertisements to its own employees, such as e-mails offering
corporate-logo items or gift offers, be aware that these internal e-mail
messages may be subject to Senate Bill 186 as well. (The definition of
"pre-existing or current business relationship" does not
expressly cover employment relationships. Id. at §17529.1(l).)
You may want to implement a policy of routinely obtaining employee
consents to receive such e-mail communications, with current employees
providing consent by the end of this year and new employees providing
consent upon hire.

Consult with counsel to ensure
ongoing compliance with Senate Bill 186, as well as the recent European
Union legislation if applicable.

Concluding Thoughts
on Senate Bill 186

"Spam" e-mail is
undoubtedly a significant problem requiring legislative solutions. Senate Bill
186, however, would regulate not only spam, but also commonplace business
communications that traditionally have not been viewed as spam. Accordingly,
anyone using e-mail to develop or promote business from or to California should
take steps to review and to ensure compliance with Senate Bill 186 before it
becomes effective on January 1. Morrison & Foerster
stands ready to assist its clients in complying with this significant new law.

Footnotes

[1] Senate Bill 186 also prohibits
certain activities specifically related to "spam," such as the
following: (1) gathering e-mail addresses posted on the Internet in order
to send unsolicited commercial e-mail advertisements; (2) using an
automated means of generating e-mail addresses to send unsolicited commercial
e-mail advertisements; (3) sending any commercial e-mail advertisement
using a third party's domain name without authorization; or (4) sending
any commercial e-mail advertisement containing falsified or misrepresented
header information or subject line information. Id. at
§§17529.4 and 17529.5.

[2] Under Senate Bill 186, a
"pre-existing or current business relationship" exists only if
"the recipient has made an inquiry and has provided his or her e-mail
address, or has made an application, purchase, or transaction, with or without
consideration, regarding products offered by the advertiser." In addition,
for the "pre-existing or current business relationship" exception to
apply, the definition also requires that the recipient be provided with certain
opt-out mechanism(s), as discussed in further detail below. Id. at
§17529.1(l).

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