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Joe Elkind AOL Sues CEN Exhibits (both in PDF files) Joe Elkind Part One 12/29/00 AOL Sues Cyber Entertainment NetworK Over Spam AOL has filed a $150 million suit against Netvision Audiotext dba Cyber Entertainment Network in the United States district court for the Eastern district of Virginia, Alexandria division. (Civil Action 99-1186-A) Persons named in the suit include CEN owners John J. Bennett Jr, and Joseph Elkind, as well as Robert L. Atkinson, James Cattanach, Tim Perkins, Tracy Rizzutello, Kyle Vernon and others. I interviewed CEN part-owner Joe Elkind Thursday afternoon. Listen here. Luke: What's this about an AOL lawsuit against the Cyber Entertainment Network? JoeE: I have no idea what you're talking about. I have not been served by anything and that is a fact. Luke: I will shoot you the URL of a JPG of a civil action supposedly against you by AOL. JoeE: All I am saying is that I have not been served. Luke: Do you have any idea what this is about? JoeE: Yeah, I will tell you real quick what it is about. AOL is going to sue one of the big companies there is in the adult business, which is us, and if we don't squash the lawsuit they're going to sue every other adult affiliate program and every webmaster. We're the ones who are going to have to take it on the head again just like we did with UU.net, and squash this thing. This is unfounded because we never spam. Webmasters might spam. We cut them off. We terminate them as soon as we find out without pay. I had the flu. I was puking for two days straight. [Lee Noga writes on Netpond: Was reading the L-ke Ford site, and I cannot stand misinformation, so let my anal rententive self correct this myth: JoeE may have puked for 2 days but the FLU is respiratory and not stomach inflicted in adults. Nope, there is no such thing as a "Stomach FLU". There are viruses that can cause these symptoms but it ain't the flu....] Print that Brad Shaw is a dick. Everybody agrees. He wants to see the GIA [Global Internet Alliance] fail because he can't make it in business. He's not as smart as the rest of the guys. He blasts other people because that's his way of getting his name and ego out there instead of being helpful to the industry and working with people. He just wants to blast people. Not share an opinion, he just wants to blast people and talk personally at them. Sharing an opinion and blasting people personally are two different things. He can go f--- himself. I'm going to punch him in the face at the Vegas show. Luke: I thought he was a friend of yours. JoeE: If you can't hit your friends, who can you hit? 1/4/01 Here's an excerpt from the story on Joseph Elkind's CyberEntertainment Network: In a crackdown on spam, America Online is suing a company that owns and operates pornographic Web sites, accusing it of sending junk email to AOL members. "Legally the lawsuit is important because it establishes liability for an adult Web site--that they are causing spam to be sent or are knowingly in a conspiracy with the spammers. This makes them negligent in their no-spam policy," said Nicholas Graham, an AOL spokesman. In addition to naming the two owners of Cyber Entertainment Networks, John Bennett and Joseph Elkind, the lawsuit names eight employees and 29 Webmasters under contract to promote the sites. The suit was filed in U.S. District Court in Virginia late last month. Fort Lauderdale, Fla.-based Cyber Entertainment, legally known as Netvision Audiotext, publishes adult Web sites and online magazines and produces live, interactive adult entertainment, according to its Web site. The company promotes its Web sites by authorizing other Webmasters to send traffic its way in exchange for a commission on sales. Interested Webmasters often set up promotional sites through free Web services and then try to lure new customers to their sites--and ultimately onto Cyber Entertainment's adult sites--by sending sexually explicit email. According to the complaint, "the defendants have conspired with each Web master and others to engage in this unlawful conduct. In addition, the defendants...have violated common law by...hiring and retaining the defendants as advertising Web masters who they knew or should have known were sending illegal (unsolicited bulk email) messages." America Online Inc. is suing the operators of a Web-based pornography company over millions of unsolicited e-mails with sexual content that the company has allegedly sent to AOL members since May 1999. In a lawsuit filed in U.S. District Court in Virginia, AOL charged Cyber Entertainment Network with illegally using its computer systems to send millions of sexual-oriented messages touting the Fort Lauderdale, Fla.-based company's adult Web sites to AOL members. That was done in violation of AOL's antispam policies and member service agreements, the suit alleges. The messages are being sent "indiscriminately to AOL members without regard to whether the member has any desire to view the adult material, or whether the member account is accessible to children," according to the lawsuit. ...But the AOL lawsuit charges that each person in Cyber Entertainment's team of webmasters sent out between 6,000 and 37.5 million bulk e-mails to AOL members via the online giant's network. The unsolicited messages caused members to flood AOL with thousands of complaints, with as many as 250,000 recorded in a single day, according to the lawsuit. Read On 1/17/01 Law student Bob Jones writes Luke: The big story in adult internet litigation, which so far has passed largely under the radar, is the AOL v. CEN suit. The theory of this suit appears to be (I'd love to see documents) that the pay sites are liable for the behavior of the free websites who advertise for them if the pay sites are negligent in selecting and monitoring those free sites. Personally, I think there's a good argument for holding the pay sites liable regardless of negligence, but that's beside the point. This is absolutely huge, because it threatens the basic adult internet business model. At the moment, pay sites let anyone in the world sign up to advertise for them in exchange for a cut and then claim "we were defrauded by the webmasters" when those advertisers do something wrong. No-one's talked about this (and I don't know anything directly about CEN), but it seems reasonable to conclude that when these advertisers spam AOL, even if the free webmaster account gets terminated, the pay site continues accounts for the 1 in 10,000 or whatever spam victims who decide to sign up. Or that when a free site engages in deceptive advertising, even if the free site is terminated or sued, the pay site keeps the accounts for that fraction of the customers signed up who, despite the deception, are satisfied with what they get. By structuring the business in this way, the pay site reaps the benefits of the free webmasters' misbehavior without suffering any legal liability for it. But if AOL wins the suit, that could change. 2/6/01 From PCFormat.co.uk: The company in question is Cyber Entertainment Network, one of the Internet's biggest porn site operators. AOL's lawsuit charges CEN and its affiliates with subjecting AOL subscribers - all 27 million of them - to a huge and ongoing spam campaign. The key words in that last sentence, by the way, were "and its affiliates". This is the first time anyone has tried to hold an adult site operator responsible for the naughty behaviour of sites it does not own. CEN's affiliates are paid to channel traffic on to CEN's porn empire, and, inevitably, some of them resort to the unimaginative but cheap tactic of bulk e-mailing to drive up the numbers. It's this activity that AOL wants to attack, arguing that the HTML code CEN uses to credit these affiliates implicates it in their activities. AOL's suit asks for an immediate injunction, and $25,000 for every day CEN's affiliates spammed AOL users - a figure which would rapidly climb into the millions. If successful, AOL's suit could have beneficial effects on the on-line porn business as a whole, forcing CEN's contemporaries to kick their own affiliate networks into line, and perhaps resulting in a lot less unwelcome e-mail for all of us. 4/3/01 Luke says: I've been following internet discussions of this on the newsgroup news.admin.net-abuse.email. CuriousJohn@Excite.com writes: Who is Cyber Entertainment Network? Take a look through usenet and you can't miss them. Just look for "Brittany Spears naked!!!!!!!" Among others, they host truecelebs.com. And from my experience, they could care less about spam (try to find an email address for truecelebs to lart). lawsuite@cartooney.org writes: Fascinating. The site itself seems still to be within the same Cavecreek/CWIE netblock that, along with celebticket.com, it was in last August when I submitted an RBL nom for the latter, even though both sites have been reported for being advertised in email spam in .sightings since then, Celebticket as recently as 1-29. All that's still upstreamed by Level3 too, just as it was then. A buffoon at Cavecreek told me on 8-17-00 that "We do not host these sites," but when I immediately responded to the same person with a query as to why, then, both sites appeared within the same Cavecreek netblock from which his email to me originated, he fell silent. If any of these sites *hosted* by Cavecreek have been advertised in this spam AOL users have been receiving, I rather hope AOL legal includes Cavecreek of Phoenix, AZ in its suit. Perhaps I should put a bug in their ear about it... CuriousJohn@Excite.com replies: We should get together Rob..... I have two different periods of run ins with trueceleb and celebticket, one during the same period as you in August and another in October. In both cases spam for truecelebs went on and on and complaints were ignored and then it switched over to celebticket (where of course, complaints were ignored). abacaxi@hotmail.com writes: [Cavecreek] are aiding and abetting by not penalizing the site when it's affiliates spam, and profiting from the traffic. They've been long term spam-tolerant porn site hosts for a couple of years, maybe more. Also: "According to the complaint, "the defendants have conspired with each Web master and others to engage in this unlawful conduct. In addition, the defendants...have violated common law by...hiring and retaining the defendants as advertising Web masters who they knew or should have known were sending illegal (unsolicited bulk email) messages." " antispam@blarg.net writes: In short, AOL says that although it is "affiliates" that are doing the spamming, Cyber Entertainment knows they spam and condones it. mpaulsen@charter.net writes: I don't believe it's just a case of CE turning a blind eye or even encouraging the conduct. I see a difference between paying for clicks and "hiring and retaining" the spammers. Back in February of last year CE posted to the ynot message boards when UU.net pulled the plug on some of their sites. In response, someone pointed out that CE had in-house staff whose only job was to spam ICQ and AOL. I don't believe CE responded and nobody else entered the fray in CE's defense. It appeared to me to be common knowledge, or at least entirely believable to the rest of the crowd. I can't prove that level of involvement by CE, but I'd bet all my quatloos that AOL will be able to prove it if CE doesn't settle the case first. Roy writes on YNOT: This is a question about APIC and their operation. I have a few friends whose celebrity avs sites were shut down by Steve Easton and his non profit organization. Is there some sort of glitch in the law where some giant companies with sites like TrueCelebs.com can get away with publishing celebrity content? Woudn't APIC go directly for the largest celebrity violators if their goal is to clean the net of copyright infringement. Steve Easton from APIC (monitors stolen content on the internet) writes on YNOTmasters.com: APIC works with Mitchell Kamarck and Lin Milano. We only represent about 15 celebrities. We go after all sites, including the big ones. CEN has complied to all of our requests. They also remove anything that is knowingly Playboy. I do not support the celebrity sites at all, but until the celebrities get involved, there is little we can do. Roy, was a repeat offender of copyrights on several sites. The infringers never tell the whole story, just the part that makes them look like a victim. Small AVS [Adult Verification Services] sites add up to a big piece of the pie. People are complaining that traffic is down? business isn't what it was? How can you compete with an ADULTCHECK GOLD membership when they have every bit of stolen content there is? ADULTCHECK.COM is the website. The small AVS guys are the ingrediant making ADULTCHECK rich by doing the dirty work. In the meantime, ADULTCHECK's attorneys sue everyone that infringes on the idea of AVS. Try using ----check in an AVS domain. However they do not respond to any infringement notices. It's companies like that, that are destroying the entire industry. Skitz writes: Luke, You know I have my had problems with CEN. I recently retracted a statement I made about them, and even though there's no strong animosity between me and JoeE any more, there's no loss of love either. HOWEVER, I have to say, that this AOL lawsuit is a witch-hunt, and I think you're contributing to it. I used to work at the same group of desks as the guy who was in charge of dealing with spammers in CENs programs, and I can tell you, they did not take it lightly. In fact, I felt they were unnecessarily brutal to people caught using email spam. Most had their accounts shut off immediately, when CEN became aware of any spamming done by one of their affiliates. I always felt a warning would be better. Whether the webmasters were producing one or 100 signups daily, ALL were cut off if they were caught spamming, without mercy and without a second chance. Further, I have had a backup AOL account for almost two years. Whenever I got any adult spam, I would always trace the source, and send an email to whomever the spammer was using for sponsors. In all that time, I never received an email from a site flying CEN banners. I know you are interested in the truth, and so am I, which is why I admitted my lie publically. The truth is that CEN has zero tolerance for spam. They have been particularly stringent in this since the UUNET problems a year ago. John Bennett is a smart man, and would not encourage a behavior that has the potential to bring down his company. Luke spoke the other day with Steve Workman, in house counsel to the Cyber Entertainment Network (CEN). Workman toiled for years as a Beverly Hills litigator. Workman: "We are confident of our righteousness. You'll notice in the AOL complaint that they made no distinction between CEN and webmasters." Luke: "Yes, but aren't you responsible for what your webmasters do?" Steve: "Well Luke, that's the crux of the biscuit. I am not quite sure what AOL alleges we did. We are not our webmasters. They are not our employees. We are a corporation that stands separate and apart..." Luke: "Well, are you or are you not responsible for what your webmaster affiliates do?" Steve: "Well Luke, that is exactly what the case is about. "What's curious about this case is this. Did you know how AOL got to the top of the heap? They spammed. Years ago AOL mades its mark because they spammed people. I'm not talking about junkmail in the mailbox. I'm talking about online. They spammed. AOL used to do all this stuff that they accused us of doing. Once they got to the top of the heap, they said, 'Ok, rules changed.' "Did we spam? In their complaint, AOL said spam is what we say it is. Because we say that we use opt-in lists. "AOL went to the Virginia State Legislature and presented them with a bill about spam. We're the 800 pound gorilla in your backyard and you will pass this bill and it is good for everyone. Opt-in mailings are not spam because they're requested. "AOL got complaints that they were getting these emails. People said they never asked for it, therefore it is spam. You know Luke that in the adult industry you have "friendly fraud." That's when members chargeback, saying they never ordered membership in the pay site. When in fact the husband did and the wife didn't know about it. It's the same thing as this. 'I opted in to this mail list but my wife doesn't know anything about it.' "I think AOL is getting disinformation from its outside lawyers who've made a religious crusade to stomp out spam. Without recognizing (A) that it isn't spam and (B), if what we're doing is wrong, you guys made hay of it for many years and that's why you're where you're at. I hope that once the corporate offices of AOL discover the real facts, they will reconsider the wisdom of the suit." Luke says: I highly doubt AOL will, as this suit was planned for at least a year before it was brought. AOL subpoened Joe Elkind and John Bennett, the owners of CEN, months before bringing the suit. Steve: "Let's say they won in court. That means they'd also be liable for the same s--- we do. And we don't do anything that is illegal." 4/6/01 Porn's leading webmasters are holding their breath over the outcome of the AOL vs CEN lawsuit. America Online is going after Fort Lauderdale's Cyber Entertainment Network (CEN) for allegedly spamming millions of its members with ads for X-rated web sites. Earlier this week, I posted the views of people who follow spam matters closely. They were highly skeptical, to say the least, of CEN's commitment to fight spam. antispam@blarg.net writes on the newsgroup news.admin.net-abuse.email: "In short, AOL says that although it is "affiliates" that are doing the spamming, Cyber Entertainment knows they spam and condones it." mpaulsen@charter.net writes on news.admin.net-abuse.email: "I don't believe it's just a case of CEN turning a blind eye or even encouraging the conduct. I see a difference between paying for clicks and "hiring and retaining" the spammers. Back in February of last year CEN posted to the ynot message boards when UU.net pulled the plug on some of their sites. In response, someone pointed out that CEN had in-house staff whose only job was to spam ICQ and AOL. I don't believe CEN responded and nobody else entered the fray in CEN's defense. It appeared to me to be common knowledge, or at least entirely believable to the rest of the crowd. I can't prove that level of involvement by CEN, but I'd bet all my quatloos that AOL will be able to prove it if CEN doesn't settle the case first." CuriousJohn@Excite.com writes: "I have two different periods of run ins with trueceleb and celebticket, one during the same period as you in August and another in October. In both cases spam for truecelebs went on and on and complaints were ignored and then it switched over to celebticket (where of course, complaints were ignored)." This lawsuit affects the entire industry because it threatens the webmaster affiliates model. The suit largely revolves around CEN's affiliates, who are not CEN employees. Anybody can go to CENCash.com, sign up for CEN's programs, and then start spamming them. One of the big questions is, how quickly and effectively does CEN react when its affiliates spam? Joseph Elkind and John Bennett, the two owners of CEN, have long and loudly proclaimed that CEN does not profit from spamming and that it immediately terminates its affiliates who do spam. But I've obtained emails sent in 1999 by Elkind and Bennett which appear to show a different approach to spammers. A webmaster writes Luke: "We were doing a private traffic deal with Joe E and CEN. It was all spam traffic and Joe and John knew it. I have old emails of them telling [my employee] to change accounts because of too many complaints. We were just middling the deal between CEN and this guy who was doing the spamming. CEN didnt know this guy and they wanted to. "XXX called me a few months after this went down, and said remember that ICQ spammer I was working on, well I have 13 computers spamming ICQ all day and we get sometimes 300 signups a day. He also told me that he was in charge of spam complaints so he and CEN didnt give a s--- as long as their signups came in. "I think this one [email below] would KILL them with the AOL mess that they are in. They admit to taking the spam." John Bennett (JB), co-owner of CEN, writes April 26, 1999 to the webmaster connected to the spammer: "Please change to another extension. AOL engineer is up our ass." Niles aka Nigel (a CEN employee?) writes 4/26/99: "JB, I know this is a pre-paid account and I can't very well cut it off but somebody has to say something to... This Bob Hirsch is a hellcat with apparently a lot of resources at his command. I've been getting complaints weekly about this account and if we don't take some sort of action to curb his marketing techniques I'm afraid that we could be held liable. "Also, I need to placate this Hirsch guy [Principle Engineer for AOL Technologies Robert Hirsch complaining about spam pushing CEN's sites]. I temporarily blackholed the account last week and replied to Hirsch but I don't know if that will work again this week so I'm looking to you for ideas on the best way to handle it. Niles a.k.a. Nigel ;)" Bob Hirsch writes 4/25/99: Spam follows at the end of this missive. So, if you could please: BBN - please nuke this luser's account On March 26, 1999, MPRichter wrote to: joee@powersite.net, niles@powersite.net , Cc: abuse@cw.net, abuse@alter.net Joe E - Get a load of this! Your porn site customer, TRULY18.COM spammed me before! I reported it to Niles on the 20th. The site was still up and they spammed me again!! They sent my kids more porn link spam and you told me - "Sorry, account terminated!" when I reported it - but the site is still up 6 days after first reporting it to POWERSITE!! AOL Sues CEN Exhibits (both in PDF files) I've got a copy of AOL's complaint against the Cyber Entertainment Network (CEN), owned 50-50 by Joe Elkind and John Bennett. AOL vs Netvision Audiotext dba Cyber Entertainment Network; John J. Bennett Jr., Joseph B. Elkind, Robert L. Atkinson, James Cattanach, Tim Perkins, Tracy Rizzutello, Kyle Vernon, Steve Adams, Kenneth Allen, Cyril Amin, Cliff L. Bingham, David G. Carrigan, Ruibo Chen, Michael Clark, Gregory R. Coleman, Justin D. Cook, Gregory T. Day, Michael Dunn, Sunny Feng... National Telemedia... Civil Action 99-1186-A America Online's Amended Complaint For Violations Of The Virginia Computer Crimes Act, the Federal Computer Fraud and Abuse Act, the Lanham Law and the Common Law. 1. Acting in concert with one another and with third parties, Defendants have transmitted millions of unsolicited bulk-email ("UBE") messages advertising adult Websites to America Online and its Members. The UBE messages advertise these adult Websites through graphic pictures and words, and contain hypertext links that take the viewer from the e-mail message itself to Internet Webpages through which the viewer can subscribe to adult content. 2. Defendants' UBE messages are transmitted indiscriminately to AOL Members without regard to whether the member has any desire to view adult material, or whether the member account is accessible to children. As a result, any child old enough to click a computer mouse can be exposed to the adult material advertised by Defendants. 4. In transmitting their UBE messages, the Defendants use a number of fraudulent and deceptive methods to hide their true identities and thereby make it more difficult to discover who is responsible. 5. Defendents' UBE messages harm AOL by triggering hundreds of thousands of Member complaints, thus damaging AOL's business reputation and goodwill. 6. ...Defendants have also violated common law by trespassing upon AOL's personal property. Defendants have also knowingly misappropriated advertising services on AOL's proprietary network and have been unjustly enriched at AOL's expense. ...Defendants have conspired with each other and others to engage in this unlawful conduct. In addition, Defendant Cyber Entertainment Network, its two owners/officers/directors and eight key employees named in this complaint have violated common law by negligently hiring and retaining the remaining Defendants as advertising "Webmasters" who they knew, or they should have known were sending illegal UBE messages. 13. Cyber Entertainment also operates a Webmaster advertising program by which persons (called "Webmasters") receive commissions from Cyber Entertainment based on the amount of traffic they drive to its sites. These persons become Cyber Entertainment Webmasters by registering online at Cyber Entertainment's Websites. At the conclusion of the sign up process, each webmaster is assigned a unique webmaster account code. This account code is embedded in the electronic advertising banners and hypertext links that are provided to the Webmasters by Cyber Entertainment at the conclusion of the Webmaster registration process. These banners and hypertext links facilitate the Webmasters' ability to drive traffic to Cyber Entertainment's adult Websites. The account code also allows Cyber Entertainment to track which webmaster is responsible for the traffic (or the complaints) that arrive at its adult Websites and to calculate how much commission to pay the Webmaster for that traffic. ...Cyber Entertainment has entered into Webmaster agreements with at least 29 identified persons and companies... In their capacities as Webmasters for Cyber Entertainment, these persons have transmitted millions of UBE messages advertising Cyber Entertainment's adult Websites from at least May 1999 through the present. These messages have generated hundreds of thousands of complaints from AOL members and have generated revenue for Cyber Entertainment. 14. ...John J. Bennett Jr. is president and chairman of the Board of Directors for Cyber Entertainment and owns 50% of the stock of the company. Bennett has overall responsibility for the activities of Cyber Entertainment and is specifically responsible for the operations of the four of the five company's five departments: design/HTML department, technical department, accounting department, and customer service department. 15. ...Joseph B. Elkind is the chief executive officer of Cyber Entertainment. Elkind is also the only other member of the board of directors of the company and owns 50% of the stock in the company. Elkind is specifically responsible for the operations of one of the company's five departments - the sales department - which is responsible for hiring, retaining and working with Webmasters to promote Cyber Entertainment's adult Websites. 29. Michael Clark is a webmaster representing Cyber Entertainment using the code Nikki69... Clark transmitted at least 6000 UBE messages... 46. On information and belief, National Telemedia, Inc, is a Webmaster for Cyber Entertainment, using account codes NTCOR5, NTCOR6, NTCOR7, SAMPO, TORN and XPORNI, among other account codes. On information and belief, National Telemedia transmitted at least 9.4 million UBE messages to AOL members from September 1999 to October 2000, and generated at least 18, 977 complaints from AOL members... National Telemedia is a California corporation with its principal place of business at 5000 North Parkway Calabasas, Suite 231, Calabasas, CA, 91302. Bob Jones writes: This, unlike an FTC suit, is the filing for a lawsuit that will go through discovery. They are not seeking a TRO [Temporary Restraining Order], so they have alleged in ambiguous terms a lot of facts that they may or may not be able to prove, without all of the details and accompanying affidavits of an FTC suit. In a civil complaint like this one, you allege facts, and try to do it as generally as possible. You're not supplying evidence (unlike in a TRO motion) because you expect to go through a discovery process. You want to allege sufficient facts that, if they were all proven as written, you would have a legal claim --- but no more than that. You want to retain flexibility and prevent the other side from bringing a motion to dismiss with accompanying affidavits disputing specifics. Also unlike an FTC suit, this is also a _very_ complex piece of litigation. There's a lot of law here, and predicting an outcome would require research that I'm not going to do just now. AOL alleges a variety of claims, under a number of statutes. I'm going to focus on the CEN claims, because those are the most interesting to me. AOL's basic claims for relief (theories under which they are owed money) are a 1) A Virginia statute allowing $10/e-mail or $25,000/day for sending spam; 2) Violations of U.S. Computer Intrusion Laws; 3) Negligent hiring/retention; 4) Trademark violations; 5) Trespass. There are, I think, a couple of others, but these are the interesting ones. The Virginia Statute: This is the big prize. If AOL can hold CEN responsible for this, they can go after the pay site webmasters for a fine per e-mail. The fine can be quite large. This makes lawsuits from other commercial websites (yahoo is often abused by spammers) very likely, if their states pass similar statutes (which they will if the companies lobby for it). The Virginia statute may also have 1st Amendment problems, though. The 1st Amendment does protect commercial solicitations. It does not protect repeated solicitations, or false advertising. It might also not protect spam when the target has requested that the spam cease. Can AOL establish a blanket "no-spam" policy for its members, when some of those members may want to receive the ads? Probably, I think they can. But this is a complex area, and I really don't understand the law, so I'm not going to try to resolve it. AOL will claim that advertising to its members is something that only it can do, and that by advertising to them without paying AOL, the webmasters are expropriating AOL's goodwill. I sure hope they don't win on that particular element. My suspicion is that AOL is right about the law here, the Virginia statute can be enforced, and AOL can issue a blanket "don't spam my members" policy. There's enough competition for internet accounts that people who want to receive spam can go elsewhere; the 1st Amendment concern is highly attenuated. But again, this is complicated, and not my area. I suppose the best analogy would be if a hotel put up a sign saying that salespeople could not solicit guests by knocking on every door. My guess is that a hotel could do that, even if the speech is protected, and even if some hotel residents might be interested in the message. Violations of Computer Intrusion Laws: There are a lot of claims about "fishing" for e-mail addresses and using pirated accounts to do so. If the facts are proven, this is an easy win for AOL. It's also the least interesting claim; so what if they win? Using a legitimate account to get the e-mail addresses, even creating an account just for that, should get them out from under this statute. Then there would be a violation of AOL's terms-of-service contract, but good luck tracking down the e-mail fisher. Negligent Hiring/Retention: There are two parts to this claim. The first is as a reason for holding CEN liable, which I will discuss below. The second is as a simple negligence claim. Basically, AOL alleges that CEN was negligent (didn't use due care) in hiring its free webmasters, and that damage was inflicted on AOL as a result. How much can they get for this? I don't know. The question is whether in Virginia you can, in an economic tort action, get damages for the business you lost as a result of negligent hiring/retention. They should at least get the cost of bandwidth and handling customer complaints. Trademark Violation: AOL alleges that some of the spam e-mails contain modified headers to look like they came from AOL. This, if they proved the facts, is an easy win for AOL. They aren't alleging just trademark infringement, in which they'd have to prove that the defendants were pretending to be AOL, because an AOL e-mail address doesn't mean its from the company, it means its from a user. Instead, they're alleging dilution. To win on dilution, they have to show that the AOL mark is famous (it is) and that the defendant's activities reduced the value of the mark. Obviously, sending out millions of porn ads reduces the value of the mark. Trespass: Trespass is a land tort - you came onto my land without my permission, so you owe me money. Trespass is nice because if you win, you get dignitary damages in additional to actual damages. You get damages for the metaphysical injury to your property rights. A case last year held that trespass was a good claim on the Internet. I don't know the law it established, so don't put much in the prediction. Trespass is alleged in two forms. First, that the defendants used stolen passwords to collect e-mail addresses. An easy win if proven. Second, and vastly more important, that the spam itself was a trespass. AOL's claim is that their terms of service, and cease and desist letters put the defendants on notice that they were violated AOL's property. Interesting question. See the hotel analogy above for my opinion. Now, the interesting stuff: Can AOL hold CEN liable for any of this? Keep in mind that each of these may play out differently with each of AOL's claims above. AOL has three basic theories for holding CEN liable for the actions of the webmasters: 1) CEN did some of the things themselves; 2) CEN aided, abetted, and profited from the webmasters' actions; 3) CEN was negligent in hiring and retaining the webmasters. 1) AOL alleges that CEN itself did some e-mail address fishing. If proven, this is an easy win. 2) AOL claims that CEN assisted its webmasters by giving them e-mail addresses, helping them find e-mail addresses, showing them how to market via spam, etc., and then profited from the webmaster's actions. If all of the facts are proven, this also looks like an easy win. Essentially, AOL says that they gave the webmasters everything they needed, and just got up from the chair so the webmaster could sit down and press "Send." The big question, if they win on this, is how much aiding and abetting is necessary, if the site is also profiting? If AOL proves that CEN gave the addresses to the webmasters, and taught them how to fish, we won't find out from this suit, because that much aiding is an easy win. If AOL fails to prove those facts, and still wins on this claim, that's a major victory. It would show, at a minimum, that the pay sites need to take affirmative measures to prevent their webmasters from spamming. But how many affirmative measures? That is the question. 3) AOL claims that CEN was negligent in hiring and retaining its webmasters. If CEN is like many of the cash programs I've seen, anyone in the world can be "hired" with a few mouse clicks. But, they probably also have some sort of warning telling the webmasters not to spam. Is that sufficient supervision to make the hiring and retention non-negligent? I would hope not. This is the same question as above: What measures must the pay sites take to not be negligent in hiring the webmasters? If we're lucky, the answer is "if you let anyone sign up, then you're automatically negligent." The argument is that since the pay site retains accounts for the spam victims who do sign up, they should be held strictly liable, rather than liable only for negligence, for the activities of the webmasters. I personally think this is a great theory. But we'll have to see how it plays out. We don't have CEN's answer, and we don't have the memorandums of law. We also don't know what AOL will be able to prove about CEN's internal activities. Frank writes: This is the key paragraph I have trouble with: "The only big difference between the IMS case and the CEN case is that AOL alleges that CEN "aided and abetted" the bulk emailing, rather than doing so directly." That's precisely the point. That is what makes this case completely different from the other spam cases. The analysis on this point is somewhat incorrect, actually. AOL has also alleged, under a different claim, negligent hiring and retention. This, the ability to hold the affiliate program liable for the actions of the webmasters, is precisely the point of the CEN suit, it is the only point to the CEN suit, it is what makes the CEN suit interesting, and it is why the CEN suit is a tremendous threat to the affiliate programs. The question is not whether the facts, if proven as alleged are sufficient. They certainly are. The question is how few of those facts are required, if any. The answer may be (I think it is) that none of those facts are required beyond open admissions to the affiliate program and profiting from the activities of the affiliates. If anything is required, I think assisting with marketing will be sufficient. The article, although good and largely correct, should be re-written to focus on this narrow point: Under what conditions may an affiliate program be held responsible for the actions of an affiliate? Maureen replies: The problem you find yourself with, as a courtroom lawyer, is that the distinction between the webmasters and the affiliate program is rather thin, given their financial interrelationship and wired-interdependence. Additionally, when those affiliates fail to appear to defend themselves, and melt away behind a facade of corporate structures that have no substance, CEN is left holding the bag for the undeniable spam plague. Nevertheless, a clear analysis of what constitutes aiding and abetting is lacking. I think that will put the issue in proper perspective. However, as a guy who's smelled the blood in the ring, CEN looks like they're going to be in a world of hurt if AOL can prove half of what it's alleged. Attorney Charles Carreon (cclawyer@home.com) helped regain the domain Sex.com for Gary Kremen. He writes the following about the AOL lawsuit against CEN for spam. This article's copyright is owned by Charles Carreon.
Courts have begun to recognize that the unauthorized mailing of unsolicited bulk e-mail may constitute a trespass to chattels under state law. See Compuserve, Inc. v. Cyber Promotions, Inc., 962 F. Supp. 1015 (S.D. Ohio 1997) (finding that bulk e-mailing by the defendants caused "the value of [Compuserve's equipment to be]
"Aiding & Abetting" Is A Criminal Theory of Liability That May Not Apply To CEN; However, The Theories of "Agency" and "Apparent Authority" May Produce the Same Result My research into aiding and abetting ("A&A") as a basis for liability indicates that AOL is plowing pretty new ground in the Federal Courts. An online search of Virginia case law indicates that A&A appears to be strictly a criminal concept that has not been applied to civil cases. A countrywide search of federal cases applying A&A in the Lanham Act context produced only two cases, both from the Third Circuit, which do not appear to be in agreement. I just looked at Lanham Act cases because it seems that the courts would likely follow a similar analysis as to all of AOL's claims. The first case, ELECTRONIC LABORATORY SUPPLY COMPANY v. CULLEN, 977 F.2d 798 (3rd Cir, 1992), an appeal from the Eastern District of Pennsylvania, found that Congress didn't intend to create A&A liability under the Lanham Act: Where a statute specifically limits those who may be held liable
for the conduct described by the statute, the Admittedly, Electric Lab was a special case, because the plaintiffs were suing under a special provision of the Lanham Act that allows someone whose goods have been wrongfully seized under the Act to sue for wrongful seizure. The Third Circuit found that persons injured by improper Lanham Act seizures could not sue the lawyers, but only their clients, and refused to apply A&A liability to extend the reach of the law to the lawyers. Still, the analysis should apply to the entire Lanham Act, because the Third Circuit threw in a lot of strong language about not importing A&A liability into federal law unless the judges can determine that Congress intended to impose A&A liability: Even if we thought that aiding and abetting liability would further
the statute's purpose, we could not expand the A couple of years later, in AT&T v. Winback, 42 F.3d 1421 (Third CIr., 1994), the big phone company sued one of its contractor/competitors, Winback, for misappropriating the AT&T name and logo. The trial court judge refused to enjoin the conduct of Winback's distributors. The conduct of the distributors is described in the opinion as follows: At the hearing, much of the testimony described Winback's method
of attracting customers. The evidence When it came to strict discussion of A&A liability, the Third Circuit talked the same talk as in its prior opinion in Electric Lab: "[A]iding and abetting liability is not a well-settled mechanism
for imposing civil liability. Rather, "aiding and abetting But when it got down to business, the Third Circuit found that Winback could still be held liable for the conduct of its marketing reps, based on theories of "agency" and "apparent authority." The Third Circuit gave the trial judge a pat on the back first, agreeing that Winback's reps were independent contractors; but then, the appeals judges went further: "[T]he district court properly found that the sales representatives
were independent contractors. The appeals judges then engaged in a lot of reasoning about agency and master/servant relations before turning the gun on Winback for the conduct of its sales reps: We hold,
then, that when a principal authorizes its independent contractor
agent to conduct and conclude a If this is the law, some key questions in the CEN case will be: (1) whether the Webmasters appeared to be working for CEN, (2) whether CEN authorized the Webmasters to "conduct and conclude transactions" on behalf of CEN, and (3) whether CEN benefits financially from the relationship. The next issue, of course, would be whether CEN knew that some of its Webmasters were infringing the AOL trademark, and what other affiliate programs can do to insulate themselves from the misconduct of cowboy Webmasters who infringe trademarks: Of course, it would be unfair for a principal to be liable for
all misrepresentations of its agent independent Under the
doctrine of apparent authority, the district court should have looked
to the principal's actions and the So What Can Responsible Affiliate Programs Do? Exactly what logic, and the wording of the big blocks of legal text quoted above, would suggest: (1) Establish webmaster guidelines for soliciting new members. (2) Make it clear that trademarks are to be respected, and that bulk email policies are not to be circumvented. (3) Require that webmasters provide a place where they can be contacted reliably in the event of legal problems. (4) Put indemnity and "hold harmless" agreements in your webmaster contracts, and explicitly provide that the agreement can be terminated for illegal conduct. (5) Don't send money offshore -- it just looks bad. Anything Else Interesting About This Case? One More Thing -- "Distributing UBE
Software In Violation of the Virginia Computer Crimes Act":
Count IV of the complaint alleges a violation of Virginia law that
makes it unlawful simply to distribute bulk emailing software.
I question whether the mere "distribution" of the software should
be a violation of the law. That puts a particular type of
code on the same level as a controlled substance. It appears
to regulate speech on the basis of content -- or on what the effect
of the content will be. If so, the statute may well be subject
to the highest level of constitutional scrutiny under the First
Amendment. Civil Action No. 98-0011-A UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA, ALEXANDRIA DIVISION 24 F. Supp. 2d 548; 1998 U.S. Dist. LEXIS 17437; 48 U.S.P.Q.2D (BNA) 1857 October 29, 1998, Decided October 29, 1998, Filed MEMORANDUM OPINION Before the Court is America Online's Motion for Summary Judgment
Against Joseph J. Melle, Jr., as to Liability BACKGROUND Plaintiff America Online ("AOL") is an
Internet service provider located in the Eastern District of Virginia.
AOL sued six defendants under five causes
of action: false designation of origin under the Lanham Act (Count
I); to chattels under state law. See Compuserve, Inc. v. Cyber Promotions, Inc., 962 F. Supp. 1015 (S.D. Ohio 1997) (finding that bulk e-mailing by the defendants caused "the value of [Compuserve's equipment to be] diminished even though it is not physically damaged by defendant's conduct," id. at 1022). The facts of Compuserve are nearly identical to the facts of the case at bar. In both cases, the defendants sent unsolicited e-mail advertising to hundreds of thousands of Internet users, many of whom were subscribers of the respective plaintiff's Internet services. Both defendants concealed the origin of their messages by forging header information. Both plaintiffs alleged that processing the bulk e-mail cost them time and money and burdened their equipment. Both plaintiffs contended that they received complaints from subscribers, and both contended that the bulk e-mailers continued to send messages even after they were notified that bulk e-mailing was unauthorized. Indeed, because the Compuserve case is so strikingly similar to the current litigation and the trespass law of Virginia is so close to that of Ohio, we will rely on the reasoning of Compuserve. n2 The reliance on prior court decisions unfavorable to spammers is snowballing. In the instant case, Melle's conduct fully
satisfies all the elements of AOL's claim of trespass to chattels.
It is As you can see from the above, if the spammer admits "intentionally contacting" AOL users and putting deceptive information in the email headers, they have no defense to the trespass to chattels claim. COUNT I: FALSE DESIGNATION OF ORIGIN UNDER THE LANHAM ACT False Designation of Origin claims are based on the unlawful use of a trademark or business identifier. The undisputed facts indicate that Melle
falsely designated the origin of his products in violation of the
Lanham As for the first element, it is undisputed
that many of Melle's messages contained the letters "aol.com" in
their A spammer who misidentifies the source of the email as being from a large company, by using their trademark in the header, has just painted a target on their forehead. Second, AOL members were deceived into
thinking that AOL sponsored or approved of Melle's bulk e-mailing
In his motion opposing summary judgment,
Melle failed to dispute any material fact that supports AOL's factual
The foregoing says that it's bad if you keep violating the trademark after getting a cease and desist letter; however, you've already broken the law even if you do it once. COUNT II: DILUTION OF TRADE AND SERVICE MARK UNDER THE LANHAM ACT A "dilution" claim is based on the idea that every time a trademark gets misused, it loses a little credibility in the eyes of the public. The undisputed facts indicate that Melle
diluted AOL's trademark and service mark in violation of the Lanham
Both elements of a dilution claim are
satisfied in the case at bar. First, AOL clearly owns the distinctive
"AOL" Second, the "AOL" mark was diluted by
tarnishment. "The sine qua non of tarnishment is a finding that
plaintiff's It looks like the defendants just laid down on the dilution claim. But how would they fight it, anyway? DAMAGES As to the specific damages, Magistrate
Judge T. Rawles Jones has under advisement AOL's ex parte proof
of CONCLUSION For the foregoing reasons, AOL's Motion
for Summary Judgment Against Joseph J. Melle, Jr., as to Liability
Entered this 29th day of October, 1998.
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