Client Alert: New California Law Prohibits Unsolicited "Commercial" E-mail

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Client Alert: New California Law Proh= ibits 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 commerci= al e-mail sent either from or to California. Although intended as an "anti-spam" statute, Senate Bill 186 goes far beyond those annoyi= ng bulk e-mails promoting get-rich-quick schemes or weight-loss gimmicks. Inst= ead, Senate Bill 186 broadly prohibits sending even a single e-mail advertisemen= t or promotional message from California, or to a California e-mail address, unl= ess the sender has first received the addressee's direct, opt-in consent to rec= eive 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 substanti= al 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 Y= ou Should Know About Senate Bill 186

1. = Senate Bill 186 Does Apply to People and Entities Located Outside Californi= a

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 prov= ides 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. I= d. at §17529.8(a)(2). This provision for attorneys' fees and costs is lik= ely 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 com= ply with this statute. In that case, the court may reduce the liquidated damage= s 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 plaintif= f's attorneys' fees and costs as well.

Apart from any penalt= ies awarded to each recipient of the message, the defendant could find itself liable to its e-mail service provider for liquidated damages of fifty dolla= rs ($50) per e-mail message, up to twenty-five thousand dollars ($25,000) p= er 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, S= enate 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 "commer= cial e-mail advertisement" includes any e-mail message intended to promote = or advertise goods or services. Id. at §17529.1(c). This term is n= ot 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 relation= ship [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, Sena= te Bill 186 would require the recipient to expressly consent to receive these "commercial e-mail advertisements" from you.

Finally, although Sen= ate Bill 186 creates an exception for recipients with whom you have a pre-exist= ing 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-f= ree telephone number or by sending an 'unsubscribe' e-mail to the advertiser offering the products or services in the commercial e-mail advertisement.&q= uot; Id. at § 17529.1(l). Note that, as drafted, it is unclear wheth= er 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 excep= tion 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 la= w.

Major Impli= cations 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 t= he 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 1= 86. After all, Senate Bill 186 contains no exception for individual e-mail mess= ages 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 betwee= n an individual "unsolicited" e-mail message and a bulk "spam&quo= t; 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 t= he sender is located outside California or even outside the United States. Moreover, "California e-mail address" is broadly defined to include any e-m= ail address of a California resident, any e-mail address ordinarily accessed fr= om a computer located in California, or any e-mail address maintained by a servi= ce provider that sends the billing for that account to an address in Californi= a. 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 li= ttle alternative to complying with Senate Bill 186. (Businesses located in California, of course, must comply with Senate Bill 186 regardless of wheth= er an e-mail message is being sent inside or outside California.)

Practical A= dvice to Prepare for Senate Bill 186

Begin developing procedur= es to comply with Senate Bill 186 without delay, as the law goes into effect= on January 1, 2004.
If you routinely send mar= keting or promotional e-mail communications to recipients with whom you do not have a pre-existing or current business relationship, seek their expre= ss 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 par= ty to send promotional e-mail messages on your behalf, you may be liable und= er Senate Bill 186 for causing "unsolicited commercial e-mail advertisements" to be sent. Id. at §§17529.2, 17529.1(i). Therefore, consult with counse= l if you plan to use third parties to send such e-mail communications on yo= ur 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&q= uot; sending the message or (2) the recipient's direct authorization to rec= eive promotional e-mail messages from that advertiser. See id. at §§17529.2, 17529.1(o).
Make sure that your compa= ny'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-mai= l 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 appr= oach is to obtain direct consent from each individual recipient of the e-ma= il 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 representativ= es, along with the company's written representation and warranty that it h= as obtained the express written consent of these corporate representative= s to receive these e-mail communications from you.
If your company sends e-m= ail advertisements to its own employees, such as e-mails offering corporate-logo items or gift offers, be aware that these internal e-ma= il 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 e= nsure ongoing compliance with Senate Bill 186, as well as the recent European Union legislation if applicable.

Concluding = Thoughts on Senate Bill 186

"Spam" e-ma= il is undoubtedly a significant problem requiring legislative solutions. Senate B= ill 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 sh= ould take steps to review and to ensure compliance with Senate Bill 186 before it becomes effective on January 1. Morrison & Foerste= r stands ready to assist its clients in complying with this significant new l= aw.

Foo= tnotes

[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 or= der to send unsolicited commercial e-mail advertisements; (2) using an automated means of generating e-mail addresses to send unsolicited commerci= al 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 with= out consideration, regarding products offered by the advertiser." In addit= ion, for the "pre-existing or current business relationship" exception= to apply, the definition also requires that the recipient be provided with cer= tain opt-out mechanism(s), as discussed in further detail below. Id. at §17529.1(l).