- Plaintiffs Gone Wild: Two Recent Efforts to Expand Affiliate Liability
- Courts Weigh In - and Plaintiffs' Expansive Theories Don't Fare Well
- Conclusion
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Courts Weigh In — and Plaintiffs' Expansive Theories Don't Fare Well
The efforts to extend liability in the sales tax and trademark contexts are novel, and it's hard to predict the final outcome because we have limited direct precedent to consult.
However, looking at some recent rulings in other contexts, there is good reason to believe that both legal theories go way too far.
CAN-SPAM
Unlike many other areas of the law, CAN-SPAM (15 USC 7705 and 7706) specifically authorizes affiliate liability in the statute.
The Federal Trade Commission (FTC) has routinely invoked this provision in its pursuit of marketers promoted by affiliate-initiated spam (for one of the more recent examples, see the FTC's press release on one of its porn spam busts and settlements).
Further, typically when the FTC targets a marketer on an affiliate liability theory, the marketer rolls over and settles instead of fighting.
But...a small problem: the FTC's expansive interpretation of the affiliate liability statute — the basis it has used to procure these settlements from marketers — may not actually reflect the law.
In an outcome that didn't get nearly the press it deserved, in a lawsuit against Impulse Media earlier this year, the FTC took its affiliate liability theories to a jury — and lost. This is a huge verdict because (1) the FTC rarely loses in court, and (2) perhaps more importantly, when average citizens evaluate the FTC's expansive affiliate liability theories, they may balk.
Oddly, the FTC didn't take no for an answer. It subsequently asked the judge to enjoin Impulse Media even though Impulse Media won the jury verdict. Talk about chutzpah!
Not surprisingly, the court declined the request: US v. Impulse Media, 2008 WL 1968307 (W.D. Wash. May 1, 2008).
In another lawsuit, ASIS Internet Services, v. Optin Global, Inc., 2008 WL 1902217 (N.D. Cal. March 27, 2008; unsealed April 29, 2008), a civil plaintiff, ASIS (a serial anti-spam litigant), invoked the CAN-SPAM affiliate liability provision in its anti-spam lawsuit against 20 defendants.
One defendant never showed, 18 defendants settled up (as mentioned, the typical response), and only one defendant—Azoogle—persisted in court.
Azoogle is a lead generation company for upstream marketers that relies on downstream affiliates to help it generate leads for its clients. Some of those downstream affiliates generate leads via spam. In this ruling, the court rejects Azoogle's liability for spam sent by its marketing affiliates:
Adware
Another recent affiliate liability decision is the remarkable ruling in People v. Direct Revenue LLC, 2008 WL 1849855 (N.Y. Sup. Ct. March 12, 2008), another case that did not get the attention it deserved.
In 2006, the New York Attorney General's office (NYAG) made the apparent decision that adware vendor DirectRevenue needed to be shut down by any means necessary, and it launched a multifront attack on DirectRevenue.
It publicly posted a website with information about DirectRevenue that had no apparent purpose other than to denigrate DirectRevenue's reputation. It bullied DirectRevenue's advertisers, ultimately procuring and then releasing a hyperbolic press release about, an insignificant settlement that spooked potential advertisers away from DirectRevenue. And finally, it sued DirectRevenue directly.
The NYAG's actions had their desired effect. Perhaps due in part to the NYAG's campaign to close DirectRevenue down, DirectRevenue did, in fact, go out of business. Congratulations to the NYAG for achieving its apparent goal.
But...a small problem: the NYAG's assessment of DirectRevenue's legitimacy may have, in fact, been itself lawless because the court emphatically rejected all of NYAG's legal theories. This might be amusingly ironic if the NYAG's anti-DirectRevenue campaign weren't such a chilling and crushing misuse of governmental powers.
The opinion is worth reading in its entirety, especially where the court affirms the EULA formation and limits extraterritorial liability. However, apropos to this post, the court rejected DirectRevenue's liability for its affiliates allegedly installing illegitimate software, saying the "petitioner has not shown that respondent should be held liable for the actions of those third parties under a theory of agency or ratification, or otherwise." The court explains:
It is my understanding that the NYAG has filed a notice of appeal in this case to preserve its options, but it is still deciding whether it will pursue the appeal.
Unfortunately, I'm not aware of the Synergy6 opinion being available electronically, which is a shame because it's an interesting and relatively early rejection of the NYAG's expansive affiliate liability doctrines.
Due to that ruling (which involved email marketing instead of adware), the NYAG already had good reason to suspect that its predicate theories were dubious, which makes its decision to pursue those theories against DirectRevenue even more lamentable.