[Senate Hearing 107-1135]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1135
SPAMMING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMMUNICATIONS
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
APRIL 26, 2001
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada MAX CLELAND, Georgia
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN EDWARDS, North Carolina
JEAN CARNAHAN, Missouri
Mark Buse, Republican Staff Director
Martha P. Allbright, Republican General Counsel
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
SUBCOMMITTEE ON COMMUNICATIONS
CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
SAM BROWNBACK, Kansas JOHN D. ROCKEFELLER IV, West
GORDON SMITH, Oregon Virginia
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia MAX CLELAND, Georgia
BARBARA BOXER, California
JOHN EDWARDS, North Carolina
C O N T E N T S
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Page
Hearing held on April 26, 2001................................... 1
Statement of Senator Allen....................................... 26
Statement of Senator Burns....................................... 1
Statement of Senator Rockefeller................................. 16
Prepared statement........................................... 16
Statement of Senator Wyden....................................... 26
Witnesses
Buckley, Jr., Jeremiah S., General Counsel, Electronic Financial
Services Council............................................... 32
Prepared statement........................................... 34
Catlett, Jason, President/CEO, Junkbusters Corp.................. 39
Prepared statement........................................... 41
Cerasale, Jerry, Senior Vice President, Government Affairs, The
Direct
Marketing Association Inc...................................... 29
Prepared statement........................................... 30
Goodlatte, Hon. Bob, U.S. Representative from Virginia........... 23
Prepared statement........................................... 24
Harrington, Eileen, Associate Director of Marketing Practices,
Bureau of
Consumer Protection, Federal Trade Commission.................. 3
Prepared statement........................................... 6
McClure, David P., President/CEO, U.S. Internet Industry
Association.................................................... 48
Prepared statement........................................... 50
Moore, David, President/CEO, 24/7 Media.......................... 36
Prepared statement........................................... 38
Pogust, Esq., Harris L., Partner, Sherman, Silverstein, Kohl,
Rose and Podolsky.............................................. 44
Prepared statement........................................... 46
Appendix
Hollings, Hon. Ernest F., U.S. Senator from South Carolina,
prepared statement............................................. 61
SPAMMING
----------
THURSDAY, APRIL 26, 2001
U.S. Senate,
Subcommittee on Communications,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:35 p.m. in
room SR-253, Russell Senate Office Building, Hon. Conrad Burns,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. We've got a Congressman on his way, but I'm
going to open these hearings this morning, or this afternoon on
the CAN-spam bill. We welcome everyone today to this hearing,
which concerns a matter I think of critical importance to the
future development of commerce on the Internet. How to control
the explosion of unsolicited e-mail, or commerce mail known
around the industry as spam. Specifically, we here are here to
address the CAN-spam bill that Senator Wyden and I have
introduced. Senator Allard of Colorado is also a co-sponsor of
this bill and I thank him for his support.
The CAN-spam bill would require e-mail marketers and
spammers to comply with a straightforward set of workable
common-sense rules designed to give consumers more control over
spam e-mail. Specifically, it would require a sender of
marketing e-mail to include a working return address so that
the recipient can send a reply e-mail demanding not to receive
any more messages. The marketer would be prohibited from
sending further messages to that consumer who had informed them
they wanted it to stop. Further, the bill would also prevent e-
mail marketers from using deceptive headers or subject lines so
the consumers will be able to tell who initiated the
solicitation.
The bill includes strong enforcement provisions to ensure
compliance. The Federal Trade Commission would have the
authority to impose steep civil fines up to $500,000 on
spammers. This fine would be tripled if the violation is found
to be intentional. In short, this bill provides broad consumer
protection against bad actors while still allowing Internet
advertisers a justified means of flourishing.
Senator Wyden and I have taken great care to make sure that
this bill does not harm legitimate advertising. In fact, we are
trying to help the Internet advertiser by allowing them to
reach people who want to learn more about their product. If I
open up my e-mail and find 100 messages, and they're all
advertisers, chances are I'll never read one of them. However,
if I have 10 that I want to receive their mail, advertisers,
they might find a sale there. This is how a legitimate system
should and would operate under the CAN-spam bill.
Spamming is really a problem. And I believe it's absolutely
critical that we address it now so that the Internet is allowed
to reach it's full potential. Because of the vast distances in
my home state of Montana, many of my constituents are forced to
pay long distance charges for their time on the Internet. Spam
makes it nearly impossible for these people to enjoy the
experience, and it makes it even harder for them to see how
this will help rural America flourish in the 21st Century.
Also, Internet service providers are bombarded with spam
that often corrupts and shuts down their systems. In today's
information age, where beating a competitor to the next sale is
absolutely critical to survival, these shutdowns can cause real
economic damage. We may be in a down-turned American economy,
and especially in the high-tech sector, we're going through a
little shake-out and nobody has to read a newspaper to find
that out. But the efficiencies created through the vast
information-sharing are here to stay and will help propel our
economy to levels beyond our imagination. But in order to reach
its potential, we must eliminate the bad actors and those who
threaten these efficiencies.
I had initially hoped that the technology would solve the
problem that it created. However, for every filter, there is a
quick response by spammers to beat the filter. Where have I
heard that argument before? I think we were talking about
schools and libraries at one time and the use of filters. And
this is--and we're finding out that it doesn't take much, just
the change of a numerical, a number or a letter, and you're
around the filter. It seems like a big game to them, and to us
it's a bad game.
I just recently read, and I would have most of you pick up
a Monday, last Monday's Wall Street Journal which had a big
article in the journal that says ``You've Got Mail''. And in
parenthesis, you don't want. So I think it's a very creative
article, probably laying out the problems and the challenges
that we face on spamming. Spammers--ISP's who incorporate more
sophisticated filtering to catch such alterations find that
spammers will include 1-800 numbers as graphic files imbedded
in an ordinary text message. Such telephone numbers would
display normally in ordinary e-mail, but because they were
encoded in the graphics format instead of in ordinary text,
Internet filters would miss them entirely.
I find the analysis of the anti-spamming activist quoted in
the article quite instructive. They felt that ``the technical
methods that have just given rise to an arms race situation,
where each improvement of the technical means for blocking
spam, just drives the creation of new spam means of getting
spam past the block. It will only be stopped by legislative
solutions. When it becomes too much of a financial risk for not
enough benefit, the spammers will go away, and not before.''
And I couldn't agree more. The CAN-spam bill will provide
spammers with the only kind of incentives to get out of the
business, and they understand stopping it and stop invading on
the privacy of consumers.
I look forward to hearing from the witnesses today, and I
call them to the table at this time. We have Ms. Eileen
Harrington, Associate Director of Marketing Practices, Bureau
of Consumer Protection, Federal Trade Commission here in
Washington, DC. Ms. Harrington, thank you for taking time out
of your busy schedule and coming to testify before this
Committee today. We look forward to your remarks.
STATEMENT OF EILEEN HARRINGTON, ASSOCIATE DIRECTOR OF MARKETING
PRACTICES, BUREAU OF CONSUMER
PROTECTION, FEDERAL TRADE COMMISSION
Ms. Harrington. Thank you very much, Mr. Chairman. As you
said, I am Eileen Harrington of the Federal Trade Commission's
Bureau of Consumer Protection. The Commission is very pleased
to be asked to present its views today and has submitted its
testimony to the staff for the record. I will be, of course,
happy to answer any questions that you may have, and the
answers will be my own views and not necessarily those of the
Commission.
The low cost of sending UCE or spam differentiates it from
other forms of unsolicited marketing such as direct mail or
outbound telemarketing.
Those marketing techniques, unlike spam, impose costs on
senders that may serve to limit their use. There are no
comparable limits on spam, however. Nevertheless, well-known
manufacturers and sellers of consumer good and services,
generally do not send spam. Rather, these merchants use
requested about available products, services and sales.
For example, consumers may agree in advance to receive
information about newly published books on subjects that
interest them, or weekly e-mails from airlines advising them of
discounted air fares, giving consumers the ability to choose
the information they receive over the Internet. Known in the
industry now as permission-based marketing, it is likely to
create more confidence in its content and in the sender.
This permission-based approach is the model mandated by S.
630. Not all UCE is fraudulent. Fraud operators, however, are
always among the first to exploit any technological innovation,
and it is no surprise therefore, that they have seized on the
Internet's capacity to reach literally millions of consumers
quickly and at a low cost through spam.
Not only are fraud operators able to reach millions of
individuals with one message, but they can misuse the
technology to conceal their identity.
Many spam messages contain false information about the
sender and where the message was routed from. This makes it
nearly impossible to trace the spam back to the actual sender.
In the same vein, spam often contains misleading subject lines
and extravagant earnings or performance claims about goods and
services. These types of claims are the stock in trade of
fraudulent schemes.
The Commission has conducted a vigorous law enforcement
program against fraudulent or deceptive spam. At least thirty
of the 173 cases the Commission has brought to date against
fraud on the Internet, have targeted fraudulent operations that
used spam as an essential integral part of their scheme.
The Commission has also conducted an educational program to
alert consumers and businesses about the dangers of spam. It
has published nine consumer publications that relate to spam
and more than 1.6 million of those documents have been
distributed to consumers either through paper copies or via
access to the FTC's website.
I would add the Commission is also probably the only
organization in the country that has invited consumers to send
us their spam. We operate a special spam mailbox, [email protected]
and to date we've received over 8 million pieces of unwanted
spam from consumers. The Commission supports the goals of S.
630 which are to help control the additional costs and other
potential negative effects that spam can impose, both on
Internet service providers and Internet users and to strengthen
consumer choice in the matter of whether to receive spam.
S. 630 addresses two basic problems that together pose a
real threat to consumers' confidence in the Internet as a
medium for personal electronic commerce. First, there is the
problem of fraudulent or deceptive spam. This is addressed by
the prohibitions in S. 630 against false or misleading header
information or subject headers. The Commission welcomes these
proposals as potential enhancements to its existing authority
under the Federal Trade Commission Act.
The second serious problem addressed by S. 630 is the
stress on the Internet infrastructure resulting from the sheer
volume of spam. Spam, even if not deceptive, may lead to
disruptions and inefficiencies in Internet services and
constitutes a great nuisance to consumers and businesses using
the Internet. This aspect of the problem is addressed by the
bill's opt-out provisions. S. 630 would require commercial e-
mail messages to contain an opt-out notice and a functioning
return e-mail address for sending an opt-out request.
Further, S. 630 would prohibit sending any spam after a
recipient has opted out. These provisions are a big step in the
right direction to stem the tide of spam by giving consumers
more control over which commercial e-mail messages they
receive.
Now there are several issues raised by S. 630 that I want
to mention for your consideration. First, a key term used
throughout S. 630 is commercial electronic mail message. This
term is defined in section 3 of the bill. The relevant portion
of the definition provides that an electronic mail message
shall not be considered to be a commercial electronic mail
message solely because such message includes a reference or
link to an Internet website operated for a commercial purpose.
However, in our experience much spam, particularly spam
related to pornographic websites consists of nothing more than
such a reference or link. The definition as currently drafted
could potentially be exploited by senders of such spam to evade
the requirements of this bill.
A second concern, the language in section 5 of the bill
that prohibits header information that is not legitimately
obtained, is ambiguous. To ensure that this language does not
create enforcement problems or engender unintended lawsuits,
clarification is essential.
The third concern that we want to raise concerns the
provision in S. 630 prohibiting deceptive subject lines. This
provision raises an issue about the Federal Trade Commission's
authority to challenge deception under the Federal Trade
Commission Act. Currently, under the FTC Act, the Commission
could challenge a materially false or misleading subject line
in a commercial e-mail message by using section 5 of the FTC
Act.
And the Commission could use that section of the FTC Act to
challenge this type of false or misleading representation or
any other false or misleading representation.
The applicable legal standard that the FTC must meet under
this provision of the FTC Act to demonstrate a deceptive
practice is that it is likely to mislead consumers acting
reasonably under the circumstances about a material fact. S.
630 would establish a higher standard applicable to subject
lines in commercial e-mail messeges. It would require a showing
that the person who sent the e-mail had knowledge that the
subject line was likely to mislead the recipient about a
material fact regarding the contents or subject matter of the
message.
This knowledge requirement, not an element of deception
under well-established law under the FTC Act, would make it
more difficult for the FTC to take action under S. 630 against
materially false and misleading subject lines.
As a matter of policy and fairness in enforcement,
deceptive spam should not be treated differently from other
deceptive marketing material. Moreover, the requirement of a
showing that the subject line was likely to mislead the
recipient and not reasonable consumer could increase the burden
on the Commission to enforce this part of S. 630.
This may require a showing that each individual recipient
was likely to be misled, which is a very difficult burden to
meet especially where millions and millions of consumers have
received one particular message. Imagine proving that each one
of them was likely to be misled.
Because violators of section 5 of S. 630 would be exposed
to liability for civil penalties of up to $11,000 per
violation, it may be appropriate to adopt stringent standards
for liability in S. 630 as a safeguard against penalties for
what could be mere technical violations of the bill. However,
the Commission recommends clarifying that S. 630 does not
affect the FTC's current ability to bring enforcement actions
targeting materially false or deceptive representations in
commercial e-mail messages under the FTC Act, pursuant to the
criteria of and seeking the remedies currently available under
that Act. This could be accomplished by broadening the savings
clause in section 7a of the bill.
Additionally, section 7 of S. 630 appears to preclude
enforcement of most existing federal civil laws that apply to
commercial electronic mail such as the FTC Act's broad
prohibition of deceptive advertising, except to the extent
specifically provided in S. 630. We believe that S. 630 should
not supplant other relevant federal law and we recommend
expanding the savings clause to make this point clear.
Before concluding, I do want to note that the enforcement
scheme laid out by S. 630 and which you describe, Mr. Chairman,
in your opening statement is modeled on similar schemes
Congress established for enforcement for the Commission's 900
number rule and the telemarketing sales rule in the statutes
that mandated promulgation of those rules.
The Commission's efforts would be supplemented with those
of the state attorneys general and possibly by other federal
agencies with jurisdiction in areas where the FTC has none.
This type of dual federal/state enforcement scheme has
proved extremely successful in the past, particularly in
challenging deceptive and abusive telemarketing practices and
the Commission would expect it to work equally well in this
context.
[The prepared statement of Ms. Harrington follows:]
Prepared Statement of Eileen Harrington, Associate Director of
Marketing Practices, Bureau of Consumer Protection, Federal Trade
Commission
Mr. Chairman, I am Eileen Harrington of the Federal Trade
Commission's Bureau of Consumer Protection. The Federal Trade
Commission is pleased to provide testimony today on the subject of
unsolicited commercial e-mail, the consumer protection issues raised by
its widespread use, the FTC's program to combat deceptive and
fraudulent unsolicited commercial e-mail, and the FTC's views on the
``Controlling the Assault of Non-Solicited Pornography and Marketing
Act of 2001'' (S. 630), which Chairman Burns has proposed.\1\
I. Introduction and Background
A. FTC Law Enforcement Authority
As the Federal Government's principal consumer protection agency,
the FTC's mission is to promote the efficient functioning of the
marketplace by taking action against unfair or deceptive acts or
practices, and increasing consumer choice by promoting vigorous
competition. To fulfill this mission, the Commission enforces the
Federal Trade Commission Act, which prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting
commerce.\2\ The Commission's responsibilities are far-reaching. With
certain exceptions, this statute provides the Commission with broad law
enforcement authority over virtually every sector of our economy.\3\
Commerce on the Internet, including unsolicited commercial electronic
mail, falls within the scope of this statutory mandate.
B. Concerns About Unsolicited Commercial E-mail
Unsolicited commercial e-mail--``UCE,'' or ``spam,'' in the online
vernacular--is any commercial electronic mail message sent, often in
bulk, to a consumer without the consumer's prior request or consent.
The very low cost of sending UCE differentiates it from other forms of
unsolicited marketing, such as direct mail or out-bound telemarketing.
Those marketing techniques, unlike UCE, impose costs on senders that
may serve to limit their use.
Generally, well-known manufacturers and sellers of consumer goods
and services do not send UCE. Rather, such merchants use solicited e-
mail to give consumers information that they have requested about
available products, services, and sales. For example, consumers may
agree in advance to receive information about newly-published books on
subjects of interest, online catalogues for products or services
frequently purchased, or weekly e-mails about discounted airfares.
These examples of bulk commercial e-mail sent at the consumer's
request demonstrate the value of consumer sovereignty to the growth of
Internet commerce. Giving consumers the ability to choose the
information they receive over the Internet--known in the industry now
as ``permission-based'' marketing--seems likely to create more
confidence in its content and in the sender.
By no means is all UCE fraudulent, but fraud operators, who are
often among the first to exploit any technological innovation, have
seized on the Internet's capacity to reach literally millions of
consumers quickly and at a low cost through UCE. Not only are fraud
operators able to reach millions of individuals with one message, but
they can misuse the technology to conceal their identity. Many spam
messages contain false information about the sender and where the
message was routed from, making it nearly impossible to trace the UCE
back to the actual sender. In the same vein, UCE messages also often
contain misleading subject lines and extravagant earnings or
performance claims about goods and services. These types of claims are
the stock in trade of fraudulent schemes.
Bulk UCE burdens (indeed, sometimes cripples) Internet service
providers and frustrates their customers. The FTC's main concern with
UCE, however, is its widespread use to disseminate false and misleading
claims about products and services. The Commission believes the
proliferation of deceptive bulk UCE on the Internet poses a threat to
consumer confidence in online commerce and thus views the problem of
deception as a significant issue in the debate over UCE.
II. The Federal Trade Commission's Approach to Fraud on the Internet
In 1994, the Commission filed its first enforcement action against
deception on the Internet, making it the first federal enforcement
agency to take such an action.\4\ Since that time, the Commission has
brought 173 law enforcement actions against more than 575 defendants to
halt online deception and fraud. The pace of our Internet law
enforcement has been increasing, in step with the growth of commerce--
and fraud--on the Internet; over two-thirds of the FTC's Internet-
related actions have been filed since the beginning of 1999.
The Commission brings to the Internet a long history of promoting
competition and protecting consumers in other once-new marketing media.
Recent innovations have included 900-number technology and
telemarketing. The development of each of these advances in the
marketplace was characterized by early attempts of fraud artists who
sought to capitalize on the new way of doing business. In each
instance, the Commission used its statutory authority under Section 5
of the FTC Act to bring tough law enforcement actions to halt specific
deceptive or unfair practices, and establish principles for non-
deceptive marketing.\5\ In some instances, most notably national
advertising, industry took an aggressive and strong self-regulatory
stance that resulted in dramatic improvements in advertising and
marketing practices.\6\
In other instances, at the direction of Congress or on its own
initiative, the Commission has issued trade regulation rules to
establish a bright line between legitimate and deceptive conduct.\7\
III. The Commission's Approach to Unsolicited Commercial E-mail
A. Monitoring the Problem
The Federal Trade Commission closely monitors the development of
commerce on the Internet. Since the inception of the Internet as a
commercial medium, the Commission has conducted a series of hearings
and public workshops so that it could have the benefit of views from a
wide range of stakeholders.\8\ In June 1997, at a workshop devoted to
issues of privacy on the Internet, the Commission heard discussion of
three distinct UCE problems: (1) deception in UCE content; (2) economic
and technological burdens on the Internet and delivery networks caused
by the large volume of UCE being sent; and (3) costs and frustrations
imposed on consumers by their receipt of large amounts of UCE.
While the Commission has maintained a focus on deception
perpetuated through UCE, industry and advocacy groups that participated
in the privacy workshop directed their attention to the economic and
technological burdens caused by UCE. Under the leadership of the Center
for Democracy in Technology, these groups spent a year studying the
problem and identifying possible solutions, and in July 1998 issued
their ``Report to the Federal Trade Commission of the Ad-Hoc Working
Group on Unsolicited Commercial E-Mail.'' \9\ This report recommended
the pursuit of technologies and public policies that would provide
consumers with more control over the UCE they receive. Specifically,
the report:
urged marketers to give consumers a choice to ``opt-in'' or
``opt-out'' of receiving a UCE solicitation; and
urged law enforcement to continue to attack fraudulent UCE
solicitations, including those with deceptive ``header''
information.\10\
On another front, in 1998 the FTC set up a special electronic
mailbox reserved for UCE in order to assess, first hand, emerging
trends and developments. With the assistance of Internet service
providers, privacy advocates, and other law enforcers, staff publicized
the Commission's UCE mailbox, ``[email protected],'' and invited consumers
and Internet service providers to forward their UCE to it. The
Commission also created a database in which all of the forwarded UCE
messages are stored. Over 8,300,000 pieces of UCE have been forwarded
to the Commission since January 1998, and the UCE mailbox receives an
average of 10,000 new pieces of UCE every day, 7 days a week. UCE
received and entered in the database within the preceding 6 months is
searchable. Periodically, staff has used the data to supplement law
enforcement and consumer and business education efforts. Commission
staff has recently made arrangements to purchase new indexing software
that will allow staff to conduct much more sophisticated searches as
well as manipulate the data to determine trends and patterns in the UCE
received.
B. Aggressive Law Enforcement
The Commission has responded to fraudulent UCE with a vigorous law
enforcement program. To date, about 30 of the Commission's Internet
cases have targeted scams in which spam was an essential, integral
element. Most of these cases have been Section 13(b) actions in federal
district court. For example, in May 1999, the Commission filed FTC v.
Benoit.\11\ This scheme used the ruse of a spam notification about
charges purportedly to be billed to consumers' credit card accounts to
lure the consumers into calling an expensive international telephone
number.\12\ The initial spam message purported to inform consumers that
their ``orders had been received and processed'' and that their credit
card accounts would be billed for charges ranging from $250 to $899. In
fact, the consumers had not ordered anything. The spam advised
recipients to call a specified telephone number in area code 767 with
any questions about the ``order'' or to speak to a ``representative.''
Many consumers were unaware that area code 767 is in a foreign
country--Dominica, West Indies. But because Dominica is included within
the North American Numbering Plan,\13\ it was not necessary to dial 011
or any country code to make the calls.
Consumers who called to prevent charges to their credit cards,
expecting to speak to a ``representative'' about the erroneous
``order,'' were connected to an adult entertainment ``audiotext''
service.\14\ Later, these consumers received charges on their monthly
telephone bills for the international long-distance call to Dominica,
West Indies. The defendants shared in the revenue received by a foreign
telephone company for the costly international calls. The defendants
hid their tracks by using forged headers in the spam they used to make
initial contact with consumers.
The final stipulated order that resolved this case includes a
provision specifically prohibiting the defendants from sending or
causing to be sent any e-mail (including unsolicited commercial e-mail)
that misrepresents the identity of the sender of the e-mail or the
subject of the e-mail. The Order thus bans the defendants from
falsifying information in the ``from'' and ``subject'' lines of e-
mails, as well as in the text of the message.
Another recent case, FTC v. Martinelli,\15\ targeted an alleged
pyramid scheme that centered on spam. The defendants in that case ran
an operation called DP Marketing, which was a Connecticut-based pyramid
scheme, elaborately disguised as a work-at-home opportunity. DP
Marketing solicited new recruits through ``spam'' and through newspaper
classified ads across the country. The spam contained messages such as:
``National Marketing Company seeks individuals to handle office duties
from home. This is a full or part-time position with a salary of
$13.50/hr. The position consists of processing applications for credit,
loans or employment, as well as online consumer service.''
Consumers who responded by visiting DP Marketing's Web site or by
calling the company received a pitch stating that they could receive
$13.50 per hour by just processing orders for the company from the
comfort of their own homes. The defendants also represented that no
experience was necessary, and that for a ``registration fee'' ranging
from $9.95 to $28.72 purchasers would be sent everything needed to get
started, including telephone scripts, product sheets, time sheets and
ID numbers. What consumers actually got was a kit instructing them
first to place advertisements identical to the ones to which they had
responded, and then to read the same script to people who responded to
their ads. Instead of $13.50 per hour, consumers' earnings depended on
the number of new victims they recruited.
The FTC complaint alleged that the defendants misrepresented to
consumers that DP Marketing offers jobs at a specified salary; failed
to disclose the material fact that they were offering a pyramid work-
at-home scheme; and provided to others the ``means and
instrumentalities'' to commit unlawful and deceptive acts. On November
14, 2000, the court entered a stipulated final order banning the
defendants from future pyramiding, barring them from misrepresenting
the availability and profitability of jobs, and requiring the
defendants to pay $72,000 in consumer redress.
The Commission has also brought a number of cases against credit
repair scams that used spam as an integral aspect of their
deception.\16\ In a particularly pernicious variation on this scheme,
consumers are urged to create a new credit identity in order to fix
their credit. Using spam messages such as ``BRAND NEW CREDIT FILE IN 30
DAYS,'' these scammers induce consumers to purchase instructions about
how one can obtain a federally-issued, employee or taxpayer
identification number, and use these numbers illegally in place of
social security numbers to build a new credit profile that will
purportedly allow one to get credit that would be denied based on one's
true credit history. In fact, using a false identification number to
apply for credit is a felony--a point these scammers omit from their
solicitations. The Commission, either on its own or through the
Department of Justice, filed cases against seven operations that used
this type of deceptive spam.\17\
More recently, in FTC v. Para-Link International,\18\ the FTC sued
several Florida-based companies that were using spam to market a work-
at-home paralegal business opportunity. The Commission's complaint
charged that the defendants use spam to induce consumers to purchase
the business opportunity for $395-495. The spam contained
representations such as: ``Make Over $200 An Hour,'' and ``You Can
Process Simple Divorces and Bankruptcies From Home and Make Over $200
An Hour in as little as 30 Days!!!''; and urged prospective purchasers
to call a toll-free number for more information. Defendants promised
that the business opportunity would include training so purchasers
could become at-home paralegals; defendants also promised to refer a
steady stream of clients to purchasers of the business opportunity for
a fee of $25 each.
According to the FTC's complaint, few consumers who purchased the
business opportunity from the defendants ever realized these earnings.
The court entered a temporary restraining order (``TRO'') against the
defendants on October 17, 2000, ordering them to cease operations,
freezing their assets, and appointing a receiver to take charge of the
companies. Subsequently, the court issued an order that extended the
relief granted in the TRO pending issuance of a preliminary injunction.
Other types of deceptive schemes that use UCE have also been
targets of FTC enforcement action, such as deceptive business
opportunities \19\ and deceptive weight loss schemes.\20\ As these
cases illustrate, the Commission's focus has been on the deceptive
content of UCE messages.
C. Comprehensive Consumer and Business Education
The Commission has published nine consumer publications related to
UCE, available in paper format and downloadable from the FTC's Web
site. More than 1.6 million of these documents have been distributed to
consumers, either through paper copies or via access to the
Commission's Web site.\21\
The first, Phone, E-mail and Pager Messages May Signal Costly
Scams, was published in 1996. It has been distributed in paper form
over 16,000 times and has been accessed at the FTC's Web site more than
18,000 times. Two versions of the related Trouble @ the In-Box help
consumers identify some of the scams showing up in electronic in-boxes
and offer tips and suggestions for assessing whether an opportunity is
legitimate or fraudulent. These publications also advise consumers
about how to handle UCE and offer ideas for consumers to control the
flow of UCE. The publications steer consumers to additional resource
materials that can help them determine the validity of a promotion or
money making venture. To date, over 87,000 paper copies of the
brochures have been distributed, and they have been accessed on the
FTC's Web site nearly 53,000 times.
How To Be Web Ready is a reader's bookmark that offers consumers
tips for safe Internet browsing. It provides guidance for consumers on
how to safeguard personal information, question unsolicited product or
performance claims, exercise caution when giving their e-mail address,
guard the security of financial transactions, and protect themselves
from programs and files that could destroy their hard drives. A number
of corporations and organizations have provided a link from their Web
sites to the tips on the FTC's Web site, including Circuit City,
Borders Group Inc., Netcom, Micron, and Compaq. More than 94,000 paper
copies of the bookmark have been distributed, and it has been accessed
more than 31,000 times on the FTC's Web site. A related publication,
Site-Seeing on the Internet: A Consumer's Guide to Travel in
Cyberspace, with similar helpful hints, has been accessed nearly a
million times on the FTC's Web site, and over 165,000 papers copies
have been distributed.
In July 1998, the FTC launched a public education campaign called
Spam's Dirty Dozen: 12 Scams Most Likely to Arrive Via Bulk E-mail to
publicize the most prevalent UCE scams. The list of scams was culled
from a sampling of more than 250,000 spam messages that consumers had
forwarded to the FTC's spam mailbox at [email protected]. The consumer alert
identified the following twelve types of deceptive solicitations and
described how each operates: business opportunity schemes; bulk e-mail
programs \22\; chain letters; work-at-home schemes; health and diet
scams; effortless income; free goods; investment opportunities; cable
descrambler kits; guaranteed loans or credit on easy terms; credit
repair; and vacation prize promotions. More than 24,000 paper copies of
this consumer alert have been distributed, and it has been accessed
more than 100,000 times on the FTC's Web site.
In March 2000, the Commission published an alert titled Unsolicited
Mail, Telemarketing and E-mail: Where to Go to ``Just Say No'' which
provided information to consumers on how to control junk mail and e-
mail. Over 21,000 copies of this alert have been distributed in paper
form, and it has been accessed over 20,000 times on the FTC's Web site.
In September 2000, the Commission published a consumer alert entitled
The Lowdown on Chain Letters in an effort to warn consumers about the
risks of chain letters that arrive via e-mail. Over 10,000 paper copies
of this brochure have been distributed, and it has been accessed over
8,200 times on the FTC's Web site.
In January of this year, the FTC published Cracking Down on Mail,
E-mail and Fax Scams: Project Mailbox that offers tips to consumers
about avoiding being scammed by mail or e-mail offers. The publication
is only available on the FTC's Web site, and has been accessed online
nearly 1,300 times to date.
IV. The Commission's Views on S. 630, the ``Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2001'' ( the
``CAN Spam Act of 2001'').
The Commission generally favors the underlying goals of S. 630,
which are to help control the additional costs and other potential
negative effects that UCE can impose on Internet access service
providers and other businesses and consumers that use the Internet, and
to support consumer choice in the matter of whether to receive UCE.
There are two basic problems that S. 630 addresses. First, there is the
problem of fraudulent or deceptive UCE, and second, but also important,
is the infrastructure problem that flows from the sheer volume of UCE.
UCE, even if not deceptive, may lead to significant disruptions and
inefficiencies in Internet services, and may constitute a great
nuisance to consumers and businesses using the Internet. Both of these
problems together pose a threat to consumers' confidence in the
Internet as a medium for personal electronic commerce.\23\
S. 630 mandates the ``permission-based'' marketing model already
adopted by many well-known manufacturers and sellers of consumer goods
and services, and advocated by the Center for Democracy in Technology
and other groups in their 1998 ``Report to the Federal Trade Commission
of the Ad-Hoc Working Group on Unsolicited Commercial E-Mail.''
Section 5 of S. 630 would make it unlawful to initiate transmission
of a commercial e-mail message that does not contain specified items of
information designed to enable consumers to identify UCE and to prevent
future receipt of it from that sender. These disclosures, required to
be clear and conspicuous, are: an identification that the e-mail is an
advertisement or solicitation; a notice of the opportunity (mandated by
the bill) to decline to receive further UCE from the sender to the
recipient; a functioning return e-mail address to which a recipient may
send a reply to the sender to indicate a desire not to receive further
e-mails from that sender; and a valid physical postal address of the
sender. Section 5 of S. 630 would also make it unlawful:
for a sender, or any person acting on behalf of the sender,
to initiate the transmission of UCE to any recipient after that
recipient has sent to the e-mail address provided by the sender
a request not to receive further e-mail from that sender;
for any person to initiate the transmission of a commercial
e-mail message that ``contains, or is accompanied by, header
information that is materially or intentionally false or
misleading, or not legitimately obtained;'' or
for any person to initiate the transmission of a commercial
e-mail message ``with a subject heading that such person knows
is likely to mislead the recipient about a material fact
regarding the contents or subject matter of the message.''
S. 630 includes a multi-faceted enforcement scheme. First, Section
5 of the bill, described above, would be enforceable by the FTC, and
any violation of it would be treated as if it were a violation of an
FTC Trade Regulation Rule adopted pursuant to Section 18 of the FTC
Act, 45 U.S.C.Sec. 57a. This means that each such violation would
subject the violator to a maximum civil penalty of $11,000 in an
enforcement action by the FTC.\24\
Second, the bill would allow other federal agencies that have
jurisdiction over industries whose activities are wholly or partially
exempt from the FTC's jurisdiction, such as banking and common
carriers, to enforce the bill. Third, both providers of Internet access
service and the Attorneys General of the various states would have
enforcement authority to obtain injunctions against violations of
Section 5 of the bill, and to recover damages.\25\
In addition to civil enforcement of Section 5 of S. 630, Section 4
of the bill would establish liability for criminal fines or up to one
year imprisonment for anyone who ``intentionally initiates the
transmission of any unsolicited commercial electronic mail message . .
. with knowledge that such message contains or is accompanied by header
information that is materially or intentionally false or misleading.''
S. 630 specifically provides that it would have no effect on the
ability of providers of Internet access service to enforce their anti-
UCE policies. Finally, the bill would mandate a study by the Commission
within 18 months that would provide a detailed analysis of the
effectiveness and enforcement of the bill's provisions.
The Commission's views, set forth below, on the provisions of S.
630, are informed by workshops and other discussions the Commission has
had with interested members of the Internet and marketing industry, as
well as the Commission's law enforcement experience in the area of UCE,
and in related areas, such as the ``Do Not Call'' provision of the
Telemarketing and Consumer Fraud and Abuse Prevention Act.\26\ Where
useful, the Commission also sets forth its views on H.R. 718, another
legislative proposal dealing with UCE that is similar to S. 630.\27\
A. The Definition of the Term ``Commercial Electronic Mail Message''
[Sec. 3(2) of S. 630].
A key term used throughout S. 630 is ``commercial electronic mail
message''; this term is defined in Section 3 of the bill. The relevant
portion of the definition provides that ``an electronic mail message
shall not be considered to be a commercial electronic mail message
solely because such message includes . . . a reference or link to an
Internet web site operated for a commercial purpose.'' Commission staff
has observed that much UCE--particularly UCE related to pornographic
web sites--consists of nothing more than such a reference or link. The
definition as currently drafted could potentially be exploited by
senders of such UCE to evade the requirements of the bill. As a
practical matter, it may be difficult to demonstrate to a court that an
e-mail consisting of nothing more than a URL and perhaps a statement
such as ``check this web site!'' falls within the bill's definition of
``commercial electronic mail message''--i.e,. that its ``primary
purpose . . . is to advertise or promote, for a commercial purpose, a
commercial product or service''--when the definition apparently demands
more than a reference or link to an Internet web site operated for a
commercial purpose to bring an e-mail message within the scope of the
bill's coverage. The House Bill currently under consideration, H.R.
718, avoids this problem by employing a definition of the term that
tracks the definition in S. 630 but excludes the final problematic
clause.
B. The Prohibition Against Header Information That Is Materially or
Intentionally False or Misleading, or Not Legitimately Obtained
[Sec. 5(a)(1) of S. 630)].
This provision would likely benefit consumers. Chief among consumer
complaints about UCE is that consumers do not know who sent the UCE,
and therefore do not know to whom they can send a request not to
receive more UCE. In addition, false routing information can cause UCE
messages to clog the e-mail systems of providers of Internet access
service, thereby slowing service to consumers trying to dial into the
Internet through those providers of Internet access service or even
completely shutting down the providers' systems. Indeed, some providers
have had to devote significant resources and staff to dealing with the
sometimes overwhelming tide of UCE. These costs likely are passed on to
consumers. The Commission is aware of no legitimate reason for using
false header information.
The provision prohibiting falsification of routing information
would allow a consumer to know who sent him or her the UCE. It could
also help providers of Internet access service better handle the flow
of both solicited and unsolicited commercial e-mail, because valid
routing information is more easily handled by the Internet access
service providers' e-mail servers. This could result in fewer
impairments to consumers' Internet service, and possibly fewer costs
passed on to consumers.
The provision strikes an appropriate balance by specifying that
header information that is ``materially . . . false or misleading''
violates Section 5 of S. 630, while technically false header
information not meeting the standard of ``materiality'' would be
actionable only if it could be shown that the falsehood was
intentional. This appropriately ensures that inadvertent and relatively
minor mistakes in header information will not trigger enforcement
action or private lawsuits.
The language in the provision specifying that header information
``not legitimately obtained'' violates Section 5 of the bill appears
ambiguous. To ensure that this language does not create enforcement
problems or engender unintended lawsuits, clarification would be
helpful.
This provision would impose few if any additional costs on senders
of commercial e-mail. Further, the benefits to providers of Internet
access service, recipients of e-mail, and Internet users generally who
desire and expect optimum convenience, likely outweigh any additional
costs. Also, these provisions could make the use of commercial e-mail a
more effective marketing tool, because consumers likely would be more
willing to trust the contents of a piece of UCE if they know the source
of the e-mail.
C. The Prohibition Against a Subject Heading That Such Person Knows Is
Likely To Mislead the Recipient About a Material Fact Regarding
the Contents or Subject Matter of the Message [Sec. 5(a)(2) of
S. 630].
Consumers also complain about being misled by false subject lines
of UCE. These misrepresentations lead them into believing that the
contents are about one thing, but when they open the e-mail, they
discover that it is about something else entirely. For example, many
senders of UCE that advertises pornography will use benign subject
lines such as ``Thanks for lunch'' or ``An old friend'' that the
average e-mail recipient might believe are messages from someone he or
she knows. In fact, to the consumer's surprise, such UCE advertises
pornographic Web sites. A subject line that non-deceptively described
the contents of the UCE would allow a recipient to make an informed
decision about whether to open the message.
The Commission is aware of no legitimate reason for using false
subject heading information and supports this provision. Prohibiting
deceptive subject lines would impose few, if any, additional costs on
legitimate companies that use commercial e-mail to promote their goods
and services. Benefits to individual consumer recipients of e-mail and
to Internet users generally would outweigh any costs. As with the
provisions discussed above, this provision could make the use of
commercial e-mail a more effective marketing tool, because consumers
likely would be more willing to trust the contents of a piece of UCE if
they could rely on representations made in the subject to accurately
and truthfully reflect the message's contents.
This provision of S. 630, however, raises an issue about the
Commission's authority to challenge deception under Section 5 of the
FTC Act. Currently, the Commission could challenge a materially false
or misleading subject line in a commercial e-mail message under Section
5 of the FTC Act, as it could any other deceptive representation. The
applicable legal standard that must be met to demonstrate a deceptive
practice is that it is ``likely to mislead consumers acting reasonably
under the circumstances about a material fact.'' \28\ S. 630 would
establish a higher standard applicable to subject lines in commercial
e-mail messages by requiring a showing that the person who sent the e-
mail had knowledge that the subject line was likely to mislead the
recipient about a material fact regarding the contents or subject
matter of the message. The scienter requirement--not an element of
deception under Section 5 of the FTC Act--would make it more difficult
for the Commission to take action under S. 630 against materially false
and misleading subject lines. As a matter of law enforcement, deceptive
UCE should not be treated differently from any other deceptive act or
practice. Moreover, the requirement of a showing that the subject line
was likely to mislead the recipient, and not a reasonable consumer,
could increase the burden on the Commission in any action targeting
materially false or deceptive representations made in subject lines of
commercial e-mail messages. This may require a showing that each
individual recipient was likely to be misled, a very difficult burden
to meet.
Because violating Section 5 of S. 630 would expose a person to
liability for civil penalties of up to $11,000 per violation, the
Subcommittee may believe it appropriate to adopt stringent standards
for liability in S. 630 to protect against penalties for what could be
mere technical violations of the Bill.\29\ However, the Commission
believes that it would be useful for S. 630 to make clear that it does
not affect the FTC's current ability to bring enforcement actions
targeting materially false or deceptive representations in commercial
e-mail messages under Section 5 of the FTC Act, pursuant to the
criteria of, and seeking the remedies available under, that Act.\30\
This could be accomplished by broadening the savings clause in Section
7(a) of the bill.\31\ Therefore, clarification of an intent to leave
intact the Commission's powers under the FTC Act with respect to
deceptive representations in subject lines of commercial e-mail
messages would be helpful.
D. The Requirement of an E-mail Address to Which Consumers Can Request
to No Longer Receive UCE, and the Requirement That Senders of
UCE Honor Such Requests [Sec. Sec. 3 & 4 of S. 630].
These provisions would also likely benefit consumers. A major
frustration among recipients of commercial e-mail, and particularly
with UCE, is that often any reply to the sender's e-mail address
``bounces back'' and is never received by the sender. In such a case
there is nothing the consumer can do to avoid receipt of additional
commercial e-mail from the same sender.
The provision requiring senders of commercial e-mail messages to
include a valid reply e-mail address to which consumers may send
requests to receive no more e-mail, and requiring senders to honor such
requests, would go a long way in helping consumers control the amount
of commercial e-mail, both solicited and unsolicited, they receive.
However, it would likely impose some burdens on senders of commercial
e-mail. S. 630 would require every sender of commercial e-mail to set
up and maintain an e-mail account to which consumers could send
requests, and senders would have to monitor and update their mailing
lists at least as often as every 10 days. Nevertheless, the benefits of
such a requirement would likely outweigh the costs to the senders.
E. The Requirement of an Identifier, Opt-out Opportunity, and Physical
Address of the Sender in Each UCE Message.
S. 630 would require that every UCE message contain an identifier
indicating that the message is an advertisement or solicitation. This
provision would benefit consumers by enabling them to immediately
recognize UCE messages as advertisements. It also may allow consumers
to employ software that would filter UCE into a separate folder, or
block UCE messages entirely. This provision would thus help empower
consumers to control the amount of UCE they receive. Notice that a
message is an advertisement or solicitation would impose few, if any,
additional costs on senders of UCE; they would merely have to add a few
words (or even a few letters) to each message sent. Unlike print or
broadcast communications, additional words in e-mail messages do not
add to their cost.
S. 630 would also require each UCE message to contain a clear and
conspicuous notification of an opportunity for the recipient to decline
to receive further UCE from the sender. This requirement would benefit
consumers by helping them realize that they have a choice about whether
they wish to receive additional UCE from a particular sender. Again,
this requirement would impose few, if any, additional costs on senders
of UCE; as with the identifier requirement, they would only have to add
a few words to each message sent. It might also lower the overall
volume of unwanted UCE on the Internet, thereby lowering certain cost
burdens imposed on providers of Internet access service and potentially
passed on to consumers.
Finally, S. 630 would require that each UCE message include the
physical location of the sender. This provision might produce benefits
in the form of enhanced consumer confidence in the legitimacy of
senders. In cases where the UCE eventually leads to a transaction, the
consumer would have an additional means of contacting the seller if the
goods or services are not provided in accordance with the consumer's
understanding, or, where applicable, if the consumer wishes to go to a
seller's store. It is noteworthy that this provision of S. 630 is
consistent with the guidelines of the Organization for Economic Co-
operation and Development, which recommend that online businesses
disclose their physical address. The Commission has endorsed those
guidelines.\32\
F. The Enforcement Scheme.
The enforcement scheme laid out by S. 630 likely would work well.
It is modeled on similar schemes Congress established for enforcement
for the Commission's 900-Number Rule and the Telemarketing Sales Rule
in the statutes that mandated promulgation of those Rules.\33\ The
enforcement provisions would allow the Commission to treat violations
of S. 630 as violations of a rule under Section 18 (15 U.S.C. Sec. 57a)
of the FTC Act regarding unfair or deceptive acts or practices.
Moreover the Commission's efforts would be supplemented with those of
the state Attorneys General, and possibly by other federal agencies
with jurisdiction in areas where the FTC has none. This type of dual
federal-state enforcement scheme has proved extremely successful in the
past, particularly in challenging deceptive and abusive telemarketing
practices, and the Commission would expect it to work equally well in
this context.
G. The Effect on Other Laws [Sec. 7 of H.R. 630].
S. 630 provides an express savings clause for specific enforcement
provisions of the Communications Act of 1934 and for federal criminal
statutes. This express clause appears to preclude enforcement of most
existing federal civil laws that apply to commercial electronic mail,
such as the FTC Act's broad prohibition of deceptive advertising,
except to the extent specifically provided in S. 630. The Commission
believes that S. 630 should not supplant other relevant federal law,
and recommends expanding the savings clause to make this clear.
H. The Provision That Within 18 Months the Commission Conduct A Study
of the Effectiveness and Enforcement of S. 630's
Provisions.\34\
A study of the effectiveness and enforcement of S. 630, if enacted
with a requirement for such a study, would be based largely on the
consumer complaint data from the Commission's UCE database. This
database holds more than eight million UCE messages forwarded by
consumers and providers of Internet access service. The Commission uses
this database to assess the current state of UCE, spot emerging trends,
and target its law enforcement efforts on the most serious problems.
The Commission would be able to conduct a study on the effectiveness
and enforcement of S. 630's provisions. However, 18 months may be too
short a time frame for the Commission to effectively research and
develop such a study. To meaningfully measure the effect of S. 630, it
may be necessary to assess the situation before it goes into effect,
and then gather data and information after it goes into effect and
businesses have had time to come into compliance. The Commission
therefore urges that the time frame for the study be extended to 24
months, in order to enhance the value of the study.
The Commission appreciates the opportunity to provide its views on
S. 630 and on its efforts against deceptive UCE. I would be happy to
answer any questions.
END NOTES
\1\ The views expressed in this statement represent the views of
the Commission. My responses to any questions you may have are my own.
\2\ 15 U.S.C. Sec. 45(a). The Commission also has responsibilities
under more than 45 additional statutes, e.g., the Fair Credit Reporting
Act, 15 U.S.C. Sec. Sec. 1681 et seq., which establishes important
privacy protections for consumers' sensitive financial information; the
Truth in Lending Act, 15 U.S.C. Sec. Sec. 1601 et seq., which mandates
disclosures of credit terms; and the Fair Credit Billing Act, 15 U.S.C.
Sec. Sec. 1666 et seq., which provides for the correction of billing
errors on credit accounts. The Commission also enforces over 35 rules
governing specific industries and practices, e.g., the Used Car Rule,
16 CFR Part 455, which requires used car dealers to disclose warranty
terms via a window sticker; the Franchise Rule, 16 CFR Part 436, which
requires the provision of information to prospective franchisees; and
the Telemarketing Sales Rule, 16 CFR Part 310, which defines and
prohibits deceptive telemarketing practices and other abusive
telemarketing practices.
\3\ The FTC has limited or no jurisdiction over specified types of
entities and activities. These include banks, savings associations, and
federal credit unions; regulated common carriers; air carriers; non-
retail sales of livestock and meat products under the Packers and
Stockyards Act; certain activities of nonprofit corporations; and the
business of insurance. See, e.g., 15 U.S.C. Sec. Sec. 44, 45, 46 (FTC
Act); 15 U.S.C. Sec. 21 (Clayton Act); 7 U.S.C. Sec. 227 (Packers and
Stockyards Act); 15 U.S.C. Sec. Sec. 1011 et seq. (McCarran-Ferguson
Act).
\4\ FTC v. Corzine, CIV-S-94-1446 (E.D. Cal. filed Sept. 12, 1994).
\5\ Section 5 of the FTC Act, 15 U.S.C. Sec. 45, authorizes the
Commission to prohibit unfair or deceptive acts or practices in
commerce. The Commission may initiate administrative litigation, which
may culminate in the issuance of a cease and desist order. It can also
enforce Section 5 and other laws within its mandate by filing actions
in United States District Courts under Section 13(b) of the FTC Act, 15
U.S.C. Sec. 53(b), seeking injunctions, consumer redress, disgorgement,
and other equitable relief. Section 18 of the FTC Act, 15 U.S.C.
Sec. 57a, authorizes the Commission to promulgate trade regulation
rules to prohibit deceptive or unfair practices that are prevalent in
specific industries. Courts may impose civil penalties of up to $11,000
per violation of Commission trade regulation rules.
\6\ For example, the National Advertising Division of the Council
of Better Business Bureaus, Inc., operates the advertising industry's
self-regulatory mechanism.
\7\ For example, the Rule Concerning Cooling-Off Period for Sales
Made at Homes or at Certain Other Locations (the ``Cooling-Off Rule''),
16 CFR Part 429; the Mail or Telephone Order Merchandise Rule, 16 CFR
Part 435; the Trade Regulation Rule Pursuant to the Telephone
Disclosure and Dispute Resolution Act of 1992 (``The 900-Number
Rule''), 16 CFR Part 308; and the Telemarketing Sales Rule Pursuant to
the Telemarketing and Consumer Fraud and Abuse Prevention Act, 16 CFR
Part 310.
\8\ The first of these was held in the fall of 1995, when the
Commission held four days of hearings to explore the effect of new
technologies on consumers in the global marketplace. Those hearings
produced a staff report, Anticipating the 21st Century: Consumer
Protection Policy in the New High-Tech, Global Marketplace (May 1996).
\9\ This report is available at www.cdt.org/spam.
\10\ ``Header'' information, at minimum, includes the names,
addresses, or descriptions found in the ``TO:'', ``FROM:'', and
``SUBJECT:'' lines of an e-mail. It also includes the technical
description of the route an e-mail has traveled over the Internet
between the sender and recipient.
\11\ FTC v. Benoit, No. 3:99 CV 181 (W.D.N.C. filed May 11, 1999).
This case was originally filed under the caption FTC v. One or More
Unknown Parties Deceiving Consumers into Calling an International
Audiotext Service Accessed Though Telephone Number (767) 445-1775.
Through expedited discovery, the FTC learned the identities of the
perpetrators of the alleged scam by following the money trail connected
to the telephone number. Accordingly, the FTC amended its complaint to
specify the defendants' names.
\12\ A similar scheme that used spam was targeted in FTC v. Lubell,
No. 3-96-CV-80200 (S.D. Ia. 1996). In that case, the spam urged
consumers to call an expensive international number to hear a message
that purportedly would inform them about discount airline tickets and
how to enter a sweepstakes.
\13\ See http://www.nanpa.com/home.
\14\ The term ``audiotext services'' describes audio information
and entertainment services offered over the telephone through any
dialing pattern, including services accessed via 900-number, as well as
international and other non-900-number, dialing patterns.
\15\ FTC v. Martinelli, No. 399 CV 1272 (CFD) (D. Conn. filed July
7, 1999). Other alleged pyramid schemes that utilized spam have been
targets of FTC enforcement action. See, e.g., FTC v. Nia Cano, No. 97-
7947-IH-(AJWx) (C.D. Cal. filed Oct. 29, 1997); In re: Kalvin P.
Schmidt, Docket No. C-3834 (final consent Nov. 16, 1998).
\16\ FTC v. Consumer Credit Advocates, No. 96 Civ. 1990 (S.D.N.Y.
filed Mar. 19, 1996); FTC v. Dixie Cooley, d/b/a DWC, No. CIV-98-0373-
PHX-RGS (D. Ariz. filed March 4, 1998).
\17\ FTC v. Cliff Cross and d/b/a Build-It-Fast, Civ. No. M099CA018
(W.D. Tex. filed Feb. 1, 1999); FTC v. Ralph Lewis Mitchell, Jr., No.
CV 99-984 TJH (BQRx) (C.D. Cal. filed Jan. 29, 1999); FTC v. Frank
Muniz, No. 4:99-CV-34-RD (N.D. Fla. filed Feb. 1, 1999); U.S. v. A.
James Black, No. 99-113 (M.D. Fla. filed Feb. 2, 1999); FTC v. James
Fite, d/b/a Internet Publications, No. CV 99-04706JSL (BQRx) (C.D. Cal.
filed April 30, 1999); U.S. v. David Story, d/b/a Network Publications,
3-99CV0968-L (N.D. Tex. filed April 29, 1999); and FTC v. West Coast
Publications, LLC., CV 99-04705GHK (RZx) (C.D. Cal. filed April 30,
1999).
\18\ FTC v. Para-Link International, No. 8:00-CV-2114-T-27E (M.D.
Fla. filed Oct. 16, 2000).
\19\ FTC v. Internet Business Broadcasting, Inc., No. WMN-98-495
(D. Md. filed Feb. 19, 1998); United States v. PVI, Inc., No. 98-6935
(S.D. Fla. filed Sept. 1, 1998).
\20\ TrendMark International, Inc., Docket No. C-3829 (final
consent Oct. 6, 1998)
\21\ The distribution and access numbers for these consumer
education materials are accurate as of March 31, 2001.
\22\ These schemes claim that one can make money sending one's own
solicitations via bulk e-mail. They offer to sell one lists of e-mail
addresses or software to allow one to make the mailings. What they
don't mention is that the lists are of poor quality and that sending
bulk e-mail violates the terms of service of most providers of Internet
access service.
\23\ See Unsolicited Commercial E-mail: Hearing Before the Subcomm.
on Telecomm., Trade and Consumer Protection of the House Comm. on
Commerce, 106th Cong. (Nov. 1999) (statements of various providers of
Internet access service detailing costs and loss of goodwill caused by
UCE); Serge Gauthronet & Etienne Drouard, Unsolicited Commercial
Communications and Data Protection (Jan. 2001), p. 9. (finding, in this
study undertaken by the Commission of European Communities, that the
global cost to Internet users may be conservatively estimated at 10
billion Euros ($8.943 billion) annually); See generally the 1998 Report
to the Federal Trade Commission of the Ad-Hoc Working Group on
Unsolicited Commercial E-Mail (citing several types of costs imposed on
consumers and businesses by UCE--intrusion on consumers' privacy, lost
opportunity costs, Internet infrastructure costs, access and storage
fees, and reputational harms) (available at www.cdt.org/spam).
\24\ An action seeking civil penalties for violation of a Trade
Regulation Rule promulgated under Section 18 must be forwarded by the
Commission to the Department of Justice for filing and litigating. If
the Department of Justice declines to file the complaint within 45
days, the Commission, through its own attorneys, may file and litigate
the matter. 45 U.S.C. Sec. 56(a). Pursuant to Section 13(b) of the FTC
Act, 45 U.S.C. Sec. 53(b), however, the Commission may file and
litigate, through its own attorneys, any action seeking injunctive
relief, consumer restitution, disgorgement of ill-gotten gains or other
equitable remedies without first forwarding the matter to the
Department of Justice.
\25\ Successful plaintiff states or providers of Internet access
service could recover an amount equal to actual damages or statutory
damages of up to $10 for each separately addressed unlawful message
received by the states' residents, with a maximum of $500,000, and in
cases of willful and knowing violations, three times this amount.
Recovery of costs and reasonable attorneys' fees would be authorized.
Section 6(e) of S. 630 would establish an affirmative defense in cases
brought by providers of Internet access service or the states where a
defendant can show that it has established and implemented compliance
policies and procedures, and that any violation occurred despite good
faith efforts to follow those policies and procedures.
\26\ 5 U.S.C. Sec. 6102(a)(3)(A).
\27\ This bill was introduced on January 3, 2001 by Rep. Heather
Wilson, and is titled the ``Unsolicited Commercial Electronic Mail Act
of 2001.''
\28\ Cliffdale Associates, Inc., 103 F.T.C. 110, 165, appeal
dismissed sub nom., Koven v. F.T.C., No. 84-5337 (11th Cir. 1984).
\29\ It is noteworthy that Section 5(m)(1) of the FTC Act, 15
U.S.C. Sec. 45(m)(1), requires the Commission, in actions to recover
civil penalties for violations of trade regulation rules, to prove that
the defendant violated the rule ``with actual knowledge or knowledge
fairly implied on the basis of objective circumstances that such act is
unfair or deceptive and is prohibited by such rule.'' Moreover, this
provision requires courts, in assessing civil penalties for rule
violations, to ``take into account the degree of [the defendant's]
culpability, any history of prior such conduct, ability to pay, effect
on ability to continue to do business, and such other matters as
justice may require.''
\30\ In enforcement actions under Section 5 of the FTC Act the
Commission can not seek civil penalties; instead it can seek
administrative cease and desist orders, or, in the case of actions in
district court under Sections 5 and 13(b) of the FTC Act, equitable
remedies--injunctions, disgorgement, or restitution for consumer
victims.
\31\ In a related context, Congress ensured, in enacting the
Telemarketing and Consumer Fraud and Abuse Prevention Act, that the
Commission's ability to challenge deceptive telemarketing practices
under the FTC Act would remain intact by including a broad savings
clause: ``Nothing contained in this chapter shall be construed to limit
the authority of the Commission under any other provision of law.'' 15
U.S.C.Sec. 6105(c):
\32\ See, http://www.ftc.gov/opa/1999/9912/oecdguide.htm.
\33\ Telephone Disclosure and Dispute Resolution Act of 1992
(codified in relevant part at 15 U.S.C. Sec. Sec. 5701 et seq.) and the
Telemarketing and Consumer Fraud and Abuse Prevention Act (codified in
relevant part at 15 U.S.C.Sec. Sec. 6101-6108).
\34\ The House bill, H.R. 718, contains a provision substantially
similar to the mandatory study provision of S. 630.
Senator Burns. Thank you very much. We've enjoyed your
testimony and I have some questions for you. We've been joined
on the Committee by Senator Rockefeller. Do you have a
statement?
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. I'm going to put it in the record.
[The prepared statement of Senator Rockefeller follows:]
Prepared Statement of Hon. John D. Rockefeller IV,
U.S. Senator from West Virginia
Thank you Mr. Chairman for holding this hearing. As we all know
from our constituents, junk e-mail is a serious problem. It is costly
to consumers; it is costly to Internet service providers; and it often
puts pornography or fraudulent material into our in-boxes.
We should find a way to reduce the costs of junk e-mail, while
respecting the First Amendment, and the rights of legitimate marketers.
I applaud your efforts to bring this matter before the Committee
again this year, and to reintroduce legislation. However, I feel that
for legislation to be successful it must include several things that
are not yet in the bill we are considering.
First, we should give regular Americans and businesses the ability
to protect themselves from junk e-mail. The bill includes a ``private
right of action'' for Internet service providers, but leaves regular
Americans and businesses without the ability to go to court if they are
injured in violation of the bill.
I agree that we should give Internet service providers the right to
sue, but why leave the everyday people who have to suffer through junk
e-mail everyday with no way to seek redress? That doesn't make sense.
Second, we should listen hard to what Mr. Catlett on the second
panel has to say about how effective the proposed bill would be in
actually stopping illegitimate junk e-mail. This bill should be about
consumers--Internet users--first and foremost. If we do not give
consumers the tools to stop e-mails they don't want, then the bill will
not work.
I think that we should start by requiring that every commercial e-
mail contain the word ``advertisement'' in the subject line. That way
consumers can use technology to filter for them if they wish. Mr.
Catlett has several other ideas that we should pay close attention to.
I am sorry that I cannot spend more time at the hearing today and I
look forward to working with all of you on moving this bill forward.
Senator Burns. You're going to put your statement in the
record and I'm--Ms. Harrington, do we need legislation to
enable you to do the things that should be done with regard to
spamming?
Ms. Harrington. I think that this proposed bill greatly
enhances the FTC's current statutory authority. We don't need
legislation to give the FTC the authority to bring enforcement
action against deception. However, this legislation makes very
specific that certain practices are deceptive so that lightens
our prosecutorial burden, if you will, by establishing that as
a matter of law it is a deceptive practice to fail to do
certain things. And in addition, there are provisions in S.
630, for example the requirement of opt-out, and the
requirement that there be a valid return e-mail address and a
physical address that probably--that certainly wouldn't be
natural remedies that we could obtain in a lawsuit under the
FTC Act, so yes, I think there is a need.
Senator Burns. How close are you to being up to speed for
enforcement of this Act?
Ms. Harrington. We're ready.
Senator Burns. You're ready. Any additional dollars you'll
need?
Ms. Harrington. I don't do dollars.
[Laughter.]
Ms. Harrington. Let me tell you that the FTC has been the
leading federal enforcement agency in the area of Internet
fraud both in terms of the dollar volume of fraud stopped, the
numbers of actions taken. We've done that on a lean budget. Our
people are well-trained and ready to go. We have, as I
mentioned, an existing database of over 8 million pieces of
spam. That is a searchable database and we can search that
database to find spam that is not in compliance with certain
provisions of this statute if it becomes law, and we're ready
to go.
Senator Burns. I found the Wall Street Journal article the
other day very interesting and pretty eye-opening too. It seems
like as soon as the ISPs and the consumers come up with ways to
filter out spam, it doesn't take spammers very long to
circumvent that other technology. Can you comment right now,
the cat and mouse game, and if there's anything the FTC can do
and again, do you have the tools to do it?
Ms. Harrington. We have decades of experience with
fraudsters using new technologies and they are very good at
innovating to get around laws and other blocks to their bad
practices. I cannot tell you that we can stay a step ahead of
them.
Senator Burns. We're also running into a lot of spamming in
the wireless situation.
Ms. Harrington. Right.
Senator Burns. Are you equipped there?
Ms. Harrington. I think that----
Senator Burns. Is the spamming in the wirless a little bit
different than in the wire lines.
Ms. Harrington. It is. It's interesting you ask. I just
came back from a meeting of an organization called the
International Marketing Supervision Network which is a group of
consumer protection authorities from over 30 OECD and related
countries. I was talking to our colleagues in Scandinavia where
wireless is a far more pervasive form of communication
technology and I was talking to them specifically about this
issue, about wireless spam.
I think we have a steep learning curve to get up to speed.
We're working on it. We had a workshop about 9 months ago on
this issue at the FTC, where we invited industry and law
enforcement and consumer groups to come in and talk with us
about the technology, about business plans and business models
that might use that technology for marketing. I would tell you
that the legitimate businesses, both the communications
companies and the innovators who are seeking to use the
technology, have been very forthcoming and helpful in helping
us understand this. But I think we've got a steep learning
curve.
We can always use more resources. When I say I don't do
dollars, I run an enforcement program. We have done everything
that we can do to stretch every person's time and every dollar
that the Congress has provided to us. I think wireless poses a
whole new set of issues again and I think that if there are
additional resources to be had, we would make good use of them.
And I can also tell you that with the resources we currently
have, we are working very hard to understand and stay on top of
the technology.
Finally, I would say that one difference between our
approach to the Internet and now wireless and to the fraudulent
and deceptive applications of new technologies--one difference
between our approach at the FTC and practically everyone else's
approach, I think, is that our decision was to train the entire
staff, all of the attorneys, all of the investigators, all of
the paralegals on these technologies.
So rather than having a unit that is only devoted to the
Internet, everybody knows about the Internet, has access to our
lab and our tools. And that means we can shift our people
really quickly from telemarketing to Internet to wireless back
to telemarketing because everybody's trained up.
Senator Burns. You mentioned the fact that you had over 8
million complaints on spamming and examples of spamming. Can
you give me any kind of a figure on the number or the
percentage of those complaints which were out and out
fraudulent pieces of spam?
Ms. Harrington. Whew, there are two ways of looking at it.
Number one, what does the spam say. And I would say that the
overwhelming majority of those 8 million pieces of spam make
blatantly false statements about earnings, about product
performance, something like that.
On the other hand, and much to my gratification and ours,
we find that the people who forward this spam to us generally
don't fall for it. There are certainly exceptions where
consumers have lost significant money relying on these spams
but we also find that lots and lots and lots of people don't
believe it. But they send it to us because we've asked--you
know: give us your tired, your poor and your spam. We want
this. We want to see what's coming into consumers' mailboxes.
We want to organize it and search it, so that we can keep track
of what's going on with this marketing medium.
Senator Burns. Senator Rockefeller.
Senator Rockefeller. Thank you Mr. Chairman.
Senator Burns. You're welcome.
Senator Rockefeller. We're very courteous to each other.
We're good friends.
I get a lot of these complaints too from my folks in West
Virginia and actually it would be interesting to know the
percentage of your folks versus my folks that have home
computers, et cetera. We'll compare that at a later date.
You're not responsible for that, Ms. Harrington.
But one of the concepts which has been put forward is the
idea of tagging, you know, labeling something in advertisements
and I'm trying to think around in my mind what--you know, I
turn on AOL and it sort of--do you have to say something's an
advertisement or do people kind of inherently know it's an
advertisement just by the way it looks?
For example, when I put on AOL I cannot put on AOL without,
you know, I hear the you've got mail thing only after I've
gotten rid of what is clearly an advertisement for one reason,
it's not AOL, which one obviously recognizes. Then second, it
looks like an advertisement. If it walks like a duck, et
cetera.
So my question to you would be, and ISPs I would have to
assume might be against that, either because they think it's
inconvenient. They get revenue from it although, on the other
hand, they also get swamped by it, or some people do, you know,
trying to push all this stuff through.
Do you think that tagging or labeling something in
advertisement, the argument being that while--what is your view
on that?
Ms. Harrington. With respect to unsolicited commercial e-
mail, the proposed bill requires a label that would indicate
that it is an advertisement or it is a commercial e-mail.
Senator Rockefeller. It would say advertisement.
Ms. Harrington. It doesn't specifically say that it has to
say advertisement I don't believe.
Senator Rockefeller. Well that's what I am trying to get
from you. In other words, isn't--I mean there are all kinds of
users. I mean it's like, one of the people that I work with and
I were talking over here about people using cell phones, and we
were trying to figure out how many unnecessary phone calls are
made because there are things called cell phones in this world,
and we came up with a mutual conclusion of about 50 percent of
the phone calls that were made really don't have to be made,
but they are there because everybody's got a phone. So,
everybody's got an advertisement.
My assumption is that they would recognize that. That may
be only because I use the Internet and therefore am in a
position to recognize it and others might not and might be
subject to it, particularly the ones that pop up, you know, in
the corner of your screen. They tend to have a special kind of
a nature. Then you read them, you don't look for the tag, you
just--you look for the body of information to the extent that
your eye stays over there, and you know it's an advertisement.
So, I just want to get a sense of whether you think it's
necessary to label it as such, where those who don't use it as
much might be less--or it's fine without it.
Ms. Harrington. Well you raise the issue of blurring. And
that's an issue that has been central to all media as it
becomes used more and more for advertising. We have issues with
newspapers in blurring, and you now see in print media
typically, that text that looks like it could be editorial text
is labeled, advertisement when it is such. We saw that issue
with television in blurring----
Senator Rockefeller. It's the same principle there
actually, because it's like--I obviously did mean to interrupt
you or else I wouldn't have done it. But for example, sometimes
countries whose kings or prime ministers are coming over here,
do sections. And you're right. In the newspaper, advertisement
will be written across the top. But you don't need to see that
to know that. It looks like that, because it's got a picture of
the king or the prime minister or whatever it is and some
beautiful ocean. So, you know it's an advertisement without
looking. So I, again, I just want to hone in on the tagging
thing.
Ms. Harrington. But--one of the beauties of the Federal
Trade Commission Act is that it focuses on the reasonable
consumer, and what a consumer reasonably understands is
something that changes with time, with experience. You posed
the question from the standpoint of the consumer who is less
familiar with the Internet. And when a medium is new, I think
that we need to assume that most consumers are less familiar.
So at one point in time, it is deceptive to fail, or it may be
deceptive to fail to indicate that something is, in fact, an
advertisement, when consumers are very unfamiliar with that.
You raised the example, or point to the example of the pop
up screen. And you know, I know that we've all seen pop up
screens that are in the Microsoft Windows warning or error
message format, that are actually advertisements. Are you
familiar with that format? And so when you click on the red X
to close it out, instead of closing it out, it may take you to
an advertisement. Now my view is that, at this point in time,
the reasonable consumer who sees a Microsoft Window warning
message format in a pop up screen, the reasonable consumer
thinks that that is an error or a warning message and doesn't
think that it's an advertisement. Now 5 years from now, the
reasonable consumer may know, ah-hah. You know, that could be
anything. And so, the reasonable consumer is less likely to be
misled or deceived.
So it really--that is really one of the great strengths of
the Federal Trade Commission Act. It's flexible because it
focuses in part on what the reasonable consumer understands a
representation or a situation to mean, and that changes, as
media change, as circumstances change, as times change.
Senator Rockefeller. Do you think that this legislation
would benefit from sort of a pop up part?
Ms. Harrington. Well this legislation is about unsolicited
commercial e-mail, and I think that that's a different matter
than pop up screens and windows and other----
Senator Rockefeller. No, I'm talking about pop ups that are
advertisements.
Ms. Harrington. Right.
Senator Rockefeller. Not that are something else, you know,
or a chat room or anything of that sort. I'm talking about a
real advertisement. And you know the way they place those, you
go to Netscape and all of a sudden you have something that
you're looking at and then you have this great--this
perpendicular rectangle hits you in the face and you've got to
get rid of it before you can go on. And that's an enormous
inconvenience.
Ms. Harrington. I think the pop up screens raise a lot of
the same issues of deception that false header and router
information raises. I think that the method of delivery is
different. Spam is delivered one way and pop up screens are
programmed really differently and they're programmed to appear
on a particular website rather than to be sent out as e-mail.
So, I think that the method of delivery is different, and I'm
not sure that there is a logical way to marry those two methods
of delivery in one bill. That's my, like off the top of my head
answer.
Senator Rockefeller. As a matter of philosophy are you an
opt-in or an opt-out person?
Ms. Harrington. Well the Commission's position here is that
it supports the opt-out provision in S. 630.
Senator Rockefeller. No, but that's not what I asked. I'm
trying to get underneath that. I mean, I'm an opt-in person. I
think that you have to specifically say I am willing to do
this. I want this, as opposed to you're getting it and then,
oh, by the way, I think I'll decide to opt-out if I happen to
understand what it is. I mean I'm just trying to get it at----
Ms. Harrington. I think that the ISPs offer consumers the
choice of--that is depending on which ISP I select, if I'm an
opt-in person, I can select an opt-in ISP. If I'm an opt-out
person, I can select an opt-out ISP. I personally have selected
an opt-in ISP.
Senator Rockefeller. OK. Thank you. Now one more question.
And that is, the obvious one. Regarding ISPs--fundamentally,
computers and the use of them is about consumers. And it's like
saying is a car about General Motors or is a car about somebody
who drives it. And I tend to think a car is about somebody who
drives it, buys it, because it's their property. So the General
Motors consideration is there, but it's secondary, to me at
least. So that gets you to the so-called, the right to sue
thing. And I know that can be an overblown question, and a
stereotypical question, but nevertheless it's an interesting
one because--and I think that Senator Burns and Senator Wyden
and others, Senator Breaux, when they introduced this bill,
they introduced it as a platform, not as a final product,
because that's the way they usually do things, to get a
discussion going and then to try and look at a bill that would
be useful. But, isn't that right reserved to ISPs. That is, the
right to sue. Shouldn't that be available to consumers and if--
and I'm not asking, saying you have to agree with me, but I'd
like to hear your kind of arguments on both sides. Some people
say that you would be endlessly lost in litigation and all the
rest of it, but I'd just be interested in your views.
Ms. Harrington. Well on the one hand, I think that there is
no group that has both a stronger interest and greater strength
in protecting the interest against spam, unwanted spam, than
the ISPs do. And so, unlike your General Motors analogy where
there may be a divergence of interest between General Motors'
interest and the product owner and driver's interest, I think
that the ISP and its customers may have a unified interest here
in keeping unwanted e-mails out of consumers' mailboxes. The
basis of the unified interest may be different. With the ISP,
it goes to the economics and efficiency and reputation of their
company. For the consumer, it's the time and nuisance factor of
getting all this stuff. But I think the interest is the same.
And so on the pro side, you asked me to argue both sides.
On the pro side, I would say that here, the ISPs have the same
interest as consumers. It's rooted in something different, but
the ISPs have more resources to take that interest to court and
litigate it. I also think that there is greater efficiency in
having the ISP bring the action, because then we have one
lawsuit, not 10,000.
Senator Rockefeller. And I understand that. But if one of
the things about this problem is that it is so incredibly cheap
for advertisers. I mean it's just the cheapest thing in the
world. You push a button and millions of things go out across
the world. Nevertheless, if you've gotten 8 million--I mean the
aggregation of that begins to add up to quite a lot, and that
implies therefore, revenue. And that revenue, even though it
may be much smaller than television or radio or newspapers,
nevertheless accrues to the ISPs. So is there anything to be
said there?
Ms. Harrington. I'm not sure that there is revenue that
accrues to the ISPs from the sending of bulk spam. I don't know
that. I think, though, to argue the other side of it, that is
that there ought to be a right of action on the part of the
individual, I would look at a couple of things first. The
Telephone Consumer Protection Act of 1991 and 1992, which is
enforced by the Federal Communications Commission gives
individual consumers a cause of action in State Small Claims
Court against telemarketers who call them after they have
indicated to the telemarketer that they don't wish to receive
calls.
So I would take a look at what the experience has been with
that statute. I think that that is one of the first or few
federal statutes that provides individuals with a right of
action to vindicate their rights as consumers in state court,
and my belief is that there has not been a glut of lawsuits
brought in small claims courts on the part of individual
consumers to enforce their rights under that statute.
You know, one concern is well, gee, we are opening the
floodgates. The FTC does all of its law enforcement work in
federal courts and so I have a selfish interest because we are
all trying to get speedy resolution of our lawsuits to benefit
consumers and get money back. I have a selfish interest in
arguing against opening the federal courts to private rights of
action by individual consumers because I think that that slows,
that that would not be workable.
But you know, in this instance, Senator, I think that, that
the ISPs and the customers who don't want spam really have an
identical interest, and for myself personally, Star Power is my
ISP at home, and I'd rather have them go to court to keep spam
out of my mailbox than me spending time going to court on my
own.
Senator Rockefeller. If they would do that, and you
indicate you think they would? Yes. It doesn't--it still--if
there is a precedent to do so, if there is a precedent by
saying consumers can't.
Ms. Harrington. Can or cannot? I am sorry.
Senator Rockefeller. Cannot, in this bill, and one has to
deal with that at some point. But I understand what you are
saying, and I appreciate your answers. Thank you, Mr. Chairman.
Senator Burns. Senator, the state's attorney generals can
do it. And each of the states can do it. On behalf of the
consumers--we have been joined by Senator Allen of Virginia.
And it is nice to have you here today. Ms. Harrington--and
Senator Wyden, where have you guys been all day?
Senator Allen. I was at the Foreign Relations Committee
meeting.
Senator Burns. Good heavens. And we have been joined by
Representative Goodlatte of Virginia, and who is working this
legislation through the House side and if you would come
forward and want to make a statement, why, we would sure
entertain that.
Senator Wyden, do you have questions for Ms. Harrington?
Senator Wyden. Mr. Chairman, since I just walked in, we
were negotiating on a variety of the other tech questions, let
me catch up a little bit so I am not repetitive, and I'll have
some in a moment.
Senator Burns. OK. Thank you very much. Ms. Harrington, we
look forward to working with you and thank you for bringing
some specifics that you think are necessary to make the
legislation a little bit better and as far as you are concerned
and the FTC. We appreciate those suggestions and we look
forward in working with you as we get the final, the final bill
out of Committee and move it on. So thank you for coming today,
and we look forward to working with you. Thank you.
We are joined now by Representative Goodlatte of Virginia,
who is working his will or the will of this legislation through
the House of Representatives. We welcome you here today,
Congressman, and we look forward to your comments.
STATEMENT OF HON. BOB GOODLATTE,
U.S. REPRESENTATIVE FROM VIRGINIA
Mr. Goodlatte. Thank you, Mr. Chairman. Would that that
were so, directing my will. I do appreciate the opportunity to
testify before the Committee. It is good to be back. You have
been generous in inviting me to testify before, and I do have a
statement to make a part of the record, and I would offer part
of it.
Senator Burns. Without objection, so ordered.
Mr. Goodlatte. Unsolicited e-mail, especially commercial e-
mail such as advertisements, solicitations, or chain letters
has become the junk mail of the information age. Jupiter
Communications reported that in 1999 the average consumer
received 40 pieces of spam. By 2005, that organization
estimates that the total is likely to soar beyond 1,600 pieces
to the average consumer. These numbers are astounding and while
it costs the spammer almost nothing to send, it results in
damage to a protected computer and would be punishable by a
fine under Title 18 or by imprisonment for up to 1 year.
I want to commend you, Mr. Chairman, on the introduction of
your own spam legislation that takes a balanced approach to
combatting spam by including strong monetary penalties, but
does not include a private right of action, an area in which we
should proceed with caution in that it could have the effect of
discouraging the use of electronic commerce.
Because of the complexity surrounding all e-commerce issues
like spam, legislation must be carefully balanced to ensure
that enforcement mechanisms address real harms without causing
damage to the unique advantages provided by the Internet.
S. 630 provides law enforcement with the tools they need to
combat spam without opening the floodgates to frivolous
litigation. Legislation addressing the problem of unsolicited
commercial e-mail is greatly needed during this legislative
session to protect consumers and Internet service providers
from victimization by spam.
I look forward to continuing to work with representative
Heather Wilson, who has another important bill dealing with
this issue in the House, as well as with you, Chairman Burns,
and Senator Allen and Senator Wyden, who I know have a great
interest in this legislation as well to achieve our common goal
of reducing the burden of unwanted e-mail on consumers and
Internet service providers, and I thank you for allowing me the
opportunity to testify today.
Senator Burns. Just, you know, not only I think are we
interested in protecting the ability of legitimate commercial
entities. I guess financial institutions come to mind that
sometimes they use e-mail to inform their clients and customers
of changes and updates in company policies. These are actually
mandated by law. Would your bill affect their ability to do
that in any way?
Mr. Goodlatte. Absolutely not. This is designed to
facilitate the ease with which businesses do that. Now, there
are some concerns raised about other legislation and while I am
very supportive of the efforts to push forward in that area
with that legislation, I do think there is some fine tuning
that needs to be done so that companies can effectively
communicate with their customers, policyholders and so on
without fear of violating the law.
Senator Burns. Well, we thank you for your statement today.
We appreciate that very much. I understand you have been
spammed, and I think we all have or whatever. I was back in
1955 in the United States Marine Corps, but--those, that is
water under the bridge.
Mr. Goodlatte. It is great.
[The prepared statement of Mr. Goodlatte follows:]
Prepared Statement of Hon. Bob Goodlatte,
U.S. Representative from Virginia
Thank you, Mr. Chairman, for holding this very important hearing. I
appreciate the opportunity to appear before the Subcommittee to testify
about the need for legislation to address the growing problem of mass
unsolicited e-mail, also known as ``spam.''
The Internet is a revolutionary tool that dramatically affects the
way we communicate, conduct business, and access information.
Electronic-mail has become a powerful medium for commerce and
communication by offering an affordable way for people to reach one
another with rapid speed and reliable delivery.
Marketers have learned to take advantage of this new capability to
reach consumers. Many consumers choose to communicate via e-mail with
their financial institutions, favorite retailers and other companies
with which they form relationships. Millions of individuals and
businesses opt to receive communications and notices by e-mail. In
order for the Internet to continue to thrive and grow as a medium for
commerce, legitimate businesses must be able to responsibly communicate
with their customers or consumers who wish to do so.
However, unsolicited e-mail, especially commercial e-mail such as
advertisements, solicitations or chain letters, has become the `junk
mail' of the information age. Jupiter Communications reported that in
1999 the average consumer received 40 pieces of spam. By 2005, Jupiter
estimates that the total is likely to soar to 1,600 pieces of spam.
These numbers are truly astounding. While it costs the spammer almost
nothing to send, unsolicited e-mail messages burden consumers by
slowing down their e-mail connections, and cause big problems for the
small business owner who is trying to compete with larger companies and
larger servers.
Even more disturbing are the numerous examples that I receive from
my own constituents of the increasing amount of spam that is
pornographic in nature. This pornographic spam, opened innocently by
the recipient, often disguises the subject of the e-mail and includes a
link that takes the recipient to a pornographic web site. E-commerce
will never reach its full potential if consumers and their children
cannot utilize e-mail without the fear of being unwillingly transported
into the seamier side of the Internet.
Consumers are not the only ones victimized by spam. In recent
instances, unsolicited e-mail transmissions have paralyzed small
Internet Service Providers (ISPs) by flooding their servers with
unwanted e-mail. Excessive e-mail tie up network bandwidth and
monopolize staff resources. This has the potential to do great damage
to small ISP companies and the communities they serve.
Currently, ISPs are developing programs that require the individual
sending the unsolicited message to include a valid e-mail address,
which can then be replied to in order to request that no further
transmissions be sent. Under these programs, once the individual
sending the original e-mail receives a request to remove an address
from their distribution list, they are required to do so. However,
offending spammers get around this requirement by using the e-mail
address of an unsuspecting user to spam others.
To address the problem of fraudulent unsolicited e-mail, I have
introduced legislation in the House to give law enforcement the tools
they need to prosecute individuals who send unsolicited e-mail that
clog up consumers' in-boxes: H.R. 1017, the Anti-Spamming Act of 2001.
The Anti-Spamming Act would amend the criminal code to address
fraudulent unsolicited electronic mail. It would add to the substantive
conduct already prohibited under the law, by prohibiting both the
intentional and unauthorized sending of unsolicited e-mail that is
known by the sender to contain information that falsely identifies the
source or routing information of the e-mail.
This legislation would subject those who commit such prohibited
conduct to a criminal fine equal to $15,000 per violation or $10 per
message per violation, whichever is greater, plus the actual monetary
loss suffered by victims of the conduct. In addition, prohibited
conduct that results in damage to a ``protected computer'' would be
punishable by a fine under Title 18 or by imprisonment for up to one
year.
I commend you, Chairman Burns, on the introduction of your own spam
legislation which takes a balanced approach to combating spam by
including strong monetary penalties, but does not include a private
right of action, an area in which we should proceed with caution in
that it could have the effect of discouraging the use of electronic
commerce.
Because of the complexity surrounding all e-commerce issues like
spam, legislation must be carefully balanced to ensure that enforcement
mechanisms address real harms without causing damage to the unique
advantages provided by the Internet. S. 630 provides law enforcement
with the tools they need to combat spam without opening the floodgates
to frivolous litigation.
Legislation addressing the problem of unsolicited commercial e-mail
is greatly needed during this legislative session to protect consumers
and Internet Service Providers from victimization by spam. I look
forward to continuing to work with Representative Heather Wilson and
others in the House as well as with you, Chairman Burns, here in the
Senate to achieve our common goal of reducing the burden of unwanted e-
mail on consumers and Internet Service Providers.
Again, I thank you Mr. Chairman for allowing me the opportunity to
testify today and for your continuing efforts to curb spam.
Senator Burns. Senator Wyden.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you, Mr. Chairman. It is good to have
our friend Bob Goodlatte, who I have had a chance to work with
often over the years and I think you know Senator Burns and I
have been prosecuting this cause, like you have, for a number
of years, and that our bill really tracks your thinking, I
think, very closely. I thought we were going to get it passed
last session. We didn't quite get it there.
I am curious in terms of the House, what is taking place in
terms of trying to reconcile the approach that Senator Burns
and I have, which you are also very interested in with the
Wilson bill and what is the progress of discussions in the
House to get that done?
Mr. Goodlatte. Well, I think there is a lot of open-
mindedness on the part of Congresswoman Wilson, and myself and
others on the two Committees, the Commerce Committee and the
Judiciary Committee, which have jurisdiction over this issue.
The Commerce Committee has passed her bill out of the
Committee. The Judiciary Committee is on a 60-day secondary
referral of her bill, and it also has my bill before it because
my bill is primarily focused on Title 18, which is the
jurisdiction of the Judiciary Committee.
So it is my hope that in the very near future, we are going
to come up with a bill that is agreeable to all sides because I
think the differences that divide us are not that great. The
private right of action is certainly the biggest thing that we
have got to work out.
Senator Wyden. We will be working closely with you. It just
seems to me what CAN-Spam has been trying to get done, what you
have been trying to do is to set out some rules that if you
want to send unsolicited marketing e-mail, you have got to play
by a set of principles, rules that allow consumers to see where
the messages are coming from and to tell the sender to stop.
So this is ultimately about consumer empowerment and
Senator Burns and I have made that point again and again. We
are not interested in interfering with the legitimate e-
commerce, the core business activities that are so important in
the digital economy, so we will be working with you.
Good luck with negotiations because those are essentially
the same sort of talks we are having here, and hopefully, we
can all hit pay dirt quickly and get this bill on the way to
the President.
Mr. Goodlatte. Well, I appreciate that, Senator. We look
forward to working with you as well, and you are right,
commercial e-mails have great potential value to people who
want to receive them and we don't want to interfere with that
but we do want to have the abusers live by the rules of the
road, and that is basically what this is about and giving law
enforcement some more tools and Internet service providers some
more tools to combat that I think are important.
Senator Burns. Senator Allen.
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman, and let me commend
you, Mr. Chairman, for your leadership on this matter. I am
very pleased to be a co-sponsor of S. 630 and I associate
myself with the bill and the comments from the Senator from
Oregon, Mr. Wyden, and it is good to see my good friend from
Virginia, Congressman Bob Goodlatte, who is a leader on
technology in matters on the House side, and it is important
that we all work together on this, and I think this House
Resolution 1017 is the closest House companion to your measure
in my brief review of the key provisions in the various
measures in the House versus your measure.
Now, unsolicited commercial e-mail or spam has been a
consumer issue for a long time. I thought it only was around
since the 1980's, but since you were getting spammed you said
in 1950's, I guess you might have----
Mr. Goodlatte. I think his had pineapple on it, though.
Senator Allen. Pineapple with some bread around it, or
maybe he invented the Internet.
Senator Burns. The first CAN-Spam.
Senator Allen. They probably didn't bother to take it out
of the can if they were throwing it at you because otherwise it
wouldn't have any great effect, but nevertheless, the modern
term of spamming is an aggravation. I think anybody who has the
Internet has been spammed to one extent or another, and it is
so aggravating. You log on to your e-mail account and it says
you have got mail and of course what you have gotten mail from
is some person or entity you have no idea who they are trying
to sell you something that you don't want.
And then you, of course, have done that after wasting time
opening up this irrelevant attachment and also usually, not
usually, but a great number of times they say you have Hot
Mail, they are saying your account size is too large, and if
you do not delete things, they are going, do they give you a
list of all the things that you are going to delete? Usually
things that you would actually want to have kept in there. Some
of them you would almost wish they would delete some of these
others.
There is always e-mail from your brother or a friend that
you would like to keep just for your archives but at any rate,
apart from the annoyance of having to delete the piles of
unwanted solicitation, Spamming can and does create a lot of
problems, cause problems for servers and networks throughout
the country. It is also a waste of time. It is a waste of our
time at home and it is a waste of time in our offices.
The nation--in our nation, our capacity for electronic mail
is not unlimited. It is not limitless. That is why you say your
account sizes are too large and why it does slow down certain
networks.
The best example or the worst example from my experience is
right here in the U.S. Senate, where e-mail is often delivered
late or maybe not at all due to heavy e-mail traffic and its
impact on the Senate server, so right here that is the
situation. Now, I know the Senate is not unique. And maybe not
quite as up to date as some law firms and folks in the private
sector, but that happens in the private sector as well where
because of these unsolicited, unwanted commercial e-mails it is
slowing down productivity in the office, in the businesses,
especially a pain for small businesses, and obviously what you
have is people wasting time which is wasting lost productivity
and you are wasting the capacity, the capacity with these
unsolicited junk mails.
Now, for these reasons, these are the reasons and I think
it is a very balanced approach that the Chairman has taken here
on this measure. I chose to co-sponsor what you call the CAN-
Spam Act and our esteemed Chairman is obviously fighting a good
battle, and here are the key things that that Act will do if we
pass it in the Senate and in the House.
It will force spammers to act honestly. Now, who could be
against that? If you send an unsolicited commercial e-mail you
must include true and accurate contact information so consumers
can opt-out and stay out. One of the frustrating aspects of
this as I said, well, if you don't want any more e-mails or any
more solicitations, please click such and such and fill out
your information and we won't send it to you any longer. Well,
in researching this, that is exactly what they want you to do
so then they know hey, this is a live e-mail address so now we
can continue pestering that person so it is very aggravating to
even have to fill all that stuff out in the first place, and it
is particularly annoying if it is actually counterproductive.
Second, this CAN-Spam Act will stop the practice of
collecting e-mails for the sole purpose of spamming or so-
called spotter programs. It will also add enforcement to these
provisions to help ensure that an effective deterrent includes
severe penalties under the law and I think the legal approaches
you are taking is the right approach and very balanced and
really, that is the point.
This CAN-Spam Bill seeks to balance the interest of
Internet consumers with the interests of legitimate e-commerce
businesses seeking to utilize online opportunities. I am one
who very much likes people to be completely without a lot of
regulations, a lot of limits. I very much dislike limits.
Nevertheless, you should have honesty. You do need to have
consumers informed and people in their own homes ought to be
able to control to the best they can what is coming in and
clogging up and pestering them on their Internet.
And indeed by way of analogy in 1991, the Telephone
Consumer Protection Act by law stopped unsolicited junk fax
advertising, so in my view by analogy if we can protect fax
machines, why not computers as well?
So again, Mr. Chairman, I am very happy that you are having
this, this hearing. I think you will have a lot of support from
people all across America, and I look forward to working with
you, Mr. Chairman and other Members, Senator Wyden and others
to effectuate a good common sense approach with good balances
on privacy, on commerce, but also make sure there is honesty
and recourse for people who don't care to be pestered, annoyed
or have their e-mail mailbox clogged up. Thank you.
Senator Burns. Thank you, Senator. Any more statements? We
are going to have our next panel come forward if we could.
Mr. Jerry Cerasale, Senior Vice President of Government
Affairs, Direct Marketing Association. Mr. Jeremiah S. Buckley,
General Counsel, Electronic Financial Services Council here in
town. David Moore, President and CEO of 24/7 Media. And Jason
Catlett, President and founder, Junkbusters and Harris Pogust
of Sherman, Silverstein, Kohl, Rose and Podolsky from New
Jersey and David McClure. All make their way to the table and
we'll start this discussion.
It should be a lively one, and if you could keep your
statements to 5 minutes or so or less, if you possibly can, I
know you can't limit these Senators. I'll guarantee you that.
They get started and then we'll have a few questions. Mr.
Cerasale. Thank you for coming today.
STATEMENT OF JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT
AFFAIRS, THE DIRECT MARKETING
ASSOCIATION INC.
Mr. Cerasale. Thank you very much, Senator Burns, and I
appreciate the opportunity to be here. I am Jerry Cerasale from
the Direct Marketing Association and I ask that my written
statement be included in the record.
Senator Burns. All of your full statements will be made
part of the record today.
Mr. Cerasale. Thank you very much. I want to first start
out by thanking you and Senator Wyden and your staffs for
putting together this bill, S. 630. We think you put a lot of
thought into it, and we think that it is an excellent starting
point.
Let me start with what the DMA is. It has been around since
1917. How we look at the Internet. The Internet is basically
another medium, another way to try and reach customers and
reach potential customers, so as we look at it, let's, I want
to raise where the DMA guidelines have been for all marketing
that our members must use.
The first thing that you have to do is you don't lie. You
tell people who you are. And I think your bill does that.
You tell people that you are trying to sell them something,
and that is also in your bill. If consumers tell you I don't
want to hear any more from you, you have to honor that. That is
also in S. 630.
And we have gone a little farther at the DMA way back
starting in 1972. We had a mail preference service for people
who didn't want to receive mail. In 1985, we began a telephone
preference service for people who don't want to receive
telephone calls and in 2000, we began an e-mail preference
service for people who do not want to receive unsolicited e-
mail. Our members must use those three services if they happen
to use those medium or those media to reach consumers.
And so we have a situation where the Direct Marketing
Association members believe and use an opportunity for
individuals to say I don't want to receive further
solicitation. So we think that the basic premises, we think. We
know the basic premise in S. 630 is right along the lines of
where the DMA has been for a long, long time and we applaud you
for that.
We specifically also believe in a strong federal standard.
This is a borderless communications medium, and we think that a
strong federal standard is what makes sense and having the FTC
enforce that is an excellent idea, along with allowing the
state's attorneys general a role to support in either federal
or state court to enforce this bill as well. We think that the
strong penalties for fraud are very important.
One of the things that happens, especially in an emerging
medium, as Eileen Harrington said, is that get rich quick
schemes are probably the first to try and reach and use the
medium, and we think that anti-fraud devices are very, very
important to try and protect confidence in the medium, so we
support that.
We think that in looking at enforcement, the idea of an
opt-out in every commercial e-mail message makes sense. The
idea of saying who you are, the idea of not lying in the
headers or in the subject line is very, very important.
We believe that your bill also protects permission-based
marketing, which we think is an emerging response to consumer
needs and desires on the Internet. We do have some areas where
we think we can tweak that a little bit and we'll gladly be
working with your staffs on that to keep permission-based
marketing open and free to consumers. The Internet is
important. It is a new medium. It is not the answer. It is not
going to eliminate other forms of marketing. It has to be
integrated within the American economy and system. It can help
strengthen the economy. We think marketers have to learn to use
it and keep their practices and the principles the same
regardless of medium. We think this bill goes along in that
way, and we appreciate all your efforts in this endeavor, and I
am happy to answer any questions you may have.
[The prepared statement of Mr. Cerasale follows:]
Prepared Statement of Jerry Cerasale, Senior Vice President, Government
Affairs, The Direct Marketing Association Inc.
I. Introduction
Good afternoon, Mr. Chairman, and thank you for the opportunity to
appear before your Subcommittee as it examines unsolicited commercial
electronic mail. I am Jerry Cerasale, Senior Vice President of
Government Affairs for The Direct Marketing Association, Inc. (``The
DMA'').
The DMA is the largest trade association for businesses interested
in direct, database, and interactive marketing and electronic commerce.
The DMA represents more than 4,500 companies in the United States and
54 foreign nations. Founded in 1917, its members include direct
marketers from 50 different industry segments, as well as the non-
profit sector. Included are catalogers, financial services, book and
magazine publishers, retail stores, industrial manufacturers, Internet-
based businesses, and a host of other segments, as well as the service
industries that support them. The DMA's leadership also extends into
the Internet and electronic commerce areas through the companies that
are members of The DMA's Internet Alliance and the Association for
Interactive Media.
The DMA member companies, given their track record in delivering
high quality goods and services to consumers, have a major stake in the
success of electronic commerce, and are among those most likely to
benefit immediately from its growth. The healthy development of
electronic commerce depends on consumer trust. It is imperative that
the e-mail communications medium earns that trust.
The DMA commends the drafters for this legislation. While it is not
clear that legislation is imperative at this juncture, we support the
efforts of Senators Burns and Wyden. We think that S. 630 takes the
appropriate approach for legislation regarding UCE. S. 630 contains
many of the elements of what successful legislation in this area should
look like. We believe that the requirement that senders of unsolicited
commercial electronic mail identify themselves truthfully and provide
individuals the ability to opt-out of unsolicited commercial electronic
mail messages is essential. Likewise, The DMA is very supportive of
maintaining the ability for businesses to send messages to those
individuals who have provided affirmative consent and those individuals
with which a business has a pre-existing business relationship without
such messages being treated as unsolicited commercial electronic mail.
We also believe that providing criminal penalties for sending
unsolicited commercial electronic mail that contains fraudulent routing
information should prove very useful in limiting egregious unsolicited
messages. We continue to have some concerns with the definitions of
``initiator'' and ``affirmative consent'' and look forward to working
with the members and staff on these issues.
There are several topics I wish to focus on in more detail in my
testimony today. These are:
The DMA's self-regulatory program the e-Mail Preference
Service;
The need for strong penalties against entities that send
fraudulent messages;
Federal Trade Commission enforcement of a uniform federal
standard; and
Permission-based communications.
The DMA welcomes this congressional inquiry into these important
matters.
II. The DMA's e-Mail Preference Service Empowers Consumers With Choice
Concerning Receipt Of Unsolicited Commercial E-Mail
Mr. Chairman, The DMA is a long time leader in self-regulation and
peer regulation. We believe that in the borderless world of electronic
commerce self-regulation with effective choice to consumers is the best
means of empowering consumers regarding receipt of unsolicited
commercial electronic mail, creating and maintaining opportunity for
the many exciting new benefits of legitimate marketing in the
interactive economy.
For this reason, since publishing our electronic commerce
guidelines almost 5 years ago, we have supported an industry standard
of notice and opt-out for electronic mail marketing communications.
More recently, last year we created and launched the e-Mail Preference
Service (``e-MPS''). The e-MPS allows individuals to remove their e-
mail addresses from Internet marketing lists. This ambitious
undertaking is aimed at empowering consumers to exercise choice
regarding receipt of UCE, while creating opportunity for the many
exciting new benefits of legitimate marketing in the interactive
economy.
The e-MPS is based on The DMA's very successful Mail Preference
Service (``MPS'') and Telephone Preference Service (``TPS'') self-
regulatory initiatives. Both of these initiatives represent The DMA's
response to consumers' request for choice in the amount of mail and
telephone solicitations that they receive. In developing responsible
marketing practices for the Internet age, we have adapted this
important concept of consumer choice to the Internet medium through the
development of e-MPS.
As of January 2000, consumers have been able to register for the e-
MPS at a special DMA web site. Consumers can use this service, at no
cost, to place their e-mail addresses on a list indicating that they do
not wish to receive UCE. This service affords consumers with
flexibility to determine the types of solicitations they receive.
Through this service, individuals can opt-out of business-to-consumer
UCE, business-to-business UCE, or all UCE.
The e-MPS is part of The DMA's ``Privacy Promise to American
Consumers,'' which became effective July 1, 1999. The Privacy Promise
requires as a condition of membership in The DMA, that companies,
including online businesses, follow a set of privacy protection
practices. As part of this promise, all DMA members who wish to send
UCE to consumers are required to remove the e-mail addresses of those
consumers who have registered with the e-MPS from their lists of
consumers to whom they send e-mail solicitations. Those consumers on
the e-MPS list will receive no e-mail from DMA members unless they have
an established online business relationship with that company. This
service also is available to companies that are not members of The DMA
so that they too may take advantage of this innovative service and
respect the choice of those consumers who choose not to receive UCE.
III. Strong Penalties Should Exist To Combat Fraudulent Messages
The DMA is particularly sensitive to the practice of sending
fraudulent electronic mail messages in which some individuals are
engaged, and fully supports a prohibition on this practice. This
practice includes the sending of messages with false or fictitious
header information. The use of such fraudulent e-mail has no place in a
healthy and robust Internet. The sending of bulk fraudulent messages
has crashed the networks of Internet service providers.
In addition to deceiving consumers, fraudulent e-mail diminishes
the reputation of the entire medium, particularly messages sent from
the responsible marketers that make up our membership. Ultimately, we
believe the sending of fraudulent messages is an area in which
legislation is critical, as it is more difficult to prevent fraudulent
messages.
IV. Sending Of Commercial Messages When Consumer Permission From The
Consumer Exists Should Be Outside The Scope Of Any Legislation
Consumers often give permission to a company, or request that it
pass along their e-mail address to receive information and offers from
other service providers in a given category, such as financial
services. These consumers have requested information and granted
permission, but it may not be specific to a particular initiator. For
example, I might indicate that I would like to receive mailings on
sales of men's clothing. A variety of different businesses could then
send me messages when they have sales at their stores. Such marketing
is very beneficial to consumers and to the free flow of commerce. Any
legislation should allow such communications. It would burden the free
flow of information to such consumers to require that they give
specific permission to each ``initiator.''
V. Any Legislation Should Provide Enforcement Of A Uniform Federal
Standard
The DMA supports the approach taken in the legislation that
preempts state law by providing a uniform federal standard. Strong
preemption is the appropriate approach in the electronic environment.
Differing state regulatory standards for communicating via electronic
mail could have the effect of eliminating the inherently global
characteristics of the communications, which are in large part
responsible for its extraordinary success. It would be impossible for
businesses to comply simultaneously with different and potentially
inconsistent laws in multiple jurisdictions where individuals to whom
they send messages may be located. Often, the business is unaware of
the location of the recipient of the message. If businesses were
required to comply with the different laws of the 50 states, it would
be a tremendous burden on the Internet and could have the result of
limiting business offerings. Moreover, a patchwork of state laws,
particularly as they affect interstate communications, may ultimately
be found unconstitutional.
Likewise, we are heartened by the decision not to create a private
right of action. Creating a private cause of action would impose
substantial burdens on ISPs, resulting in the expenditure of resources
both in terms of time and money to defend litigation. Such an approach
is unnecessary in light of the fact that the FTC would be empowered to
protect consumer rights. Inclusion of a consumer cause of action would
create a very substantial bounty for class action lawyers that would
produce very substantial damage awards wholly unrelated to the costs
imposed by UCE. The legislation must foreclose the possibility of class
actions.
VI. Conclusion
We thank the Members of Congress who have introduced legislation in
this area for their thoughtful consideration of such an important
issue. We also thank the Chairman and the Subcommittee for the
opportunity to express the views of The DMA. We know that Congress and
this Subcommittee will continue to monitor this issue closely and we
look forward to working with you.
Senator Burns. Thank you very much. Jeremiah Buckley,
General Counsel, Electronic Financial Services Council. Thank
you for coming today.
STATEMENT OF JEREMIAH S. BUCKLEY, JR., GENERAL COUNSEL,
ELECTRONIC FINANCIAL SERVICES COUNCIL
Mr. Buckley. Thank you very much, Mr. Chairman. My name is
Jeremiah Buckley, and I am a partner in the Washington office
of Goodwin, Procter. I serve as general counsel of the
Electronic Financial Services Council, which is an association
of technology companies and financial services firms interested
in promoting the electronic delivery of financial services. We
are pleased to be here and have an opportunity to comment on S.
630.
Thinking back to the passage of the E-Sign Act last year,
we know this Committee and its staff appreciates the importance
of federal legislation in promoting e-commerce.
We have enjoyed working with you, Senator Burns, and with
you, Senator Wyden, in the past, and we look forward to working
with you to make this an excellent piece of legislation. We
support the fundamental premise of S. 630, that is that
offensive, fraudulent or otherwise harmful UCEs should be
prohibited and that consumers should have the ability to
control the flow of their e-mail traffic. Achieving these goals
is an important step toward assuring that consumers feel
comfortable doing business in the electronic medium, a goal
that we all share.
We believe that the UCE legislation should fit into the
framework created by previous e-commerce legislation. Congress
has repeatedly endorsed the vision of e-commerce as a national
resource. The E-Sign Act recognizes that the Internet is a
borderless medium for which it is desirable to have uniform
federal rules. S. 630 recognizes that legal uniformity is an
important part of e-commerce. It includes a provision in
Section 7(b) preempting inconsistent state law.
This preemption provision, however, does contain a number
of exceptions. In particular, it does not apply to any state
trespass, contract or tort law. These types of exceptions, we
would caution the Committee, do run the risk of swallowing up
the preemption itself. If S. 630 is to fashion a uniform
national standard for dealing with spam, it should occupy the
field. It should not leave room for the development of a
patchwork of legislative and judicial pronouncements at the
state level creating a compliance jigsaw puzzle which only the
most sophisticated players can solve.
Having established that uniform standard, we believe it is
appropriate that federal agencies be the ones assigned the
responsibility for enforcement policy, and it seems to us this
is best because in the course of enforcement, the policies that
Congress has articulated will be fleshed out, and we think it
is best that agencies which are under the jurisdiction and
direction of the Congress have the responsibility for
establishing that enforcement policy. States would, of course,
continue to have the authority to adopt uniform unfair
deceptive acts and practices legislation, as they do now, and
under those statutes, they could declare that violations of the
provisions of S. 630 constitute violations of state law. If
they do, they could also assign to their state attorney
general, to private parties, or to other agencies within the
state the responsibility for enforcement of their state law.
But we think it is wise to keep a demarcation between
federal law and state law, between federal enforcement and
state enforcement, and we think it is respectful of the
legislatures in the states to allow them to establish who will
enforce the law within their states.
Now let me turn to an issue that legislation does not
address, but which we think is vital, preserving the
reliability of e-mail communications. Last year's E-Sign Act
was a vote of confidence by the Congress in the predictability
and reliability of electronic communications. E-Sign would
envision that individuals and businesses would be able to
contract and conduct their ongoing business electronically.
In the nonelectronic world, a third party cannot
arbitrarily disrupt contractual arrangements between parties,
and E-Sign envisions that this would not happen in the e-
commerce world either. However, we are concerned about reports
that ISPs in their eagerness to help their subscribers avoid
receiving unwanted UCEs may block, in fact, there is evidence
that they are blocking, e-mails that subscribers not only want
but have specifically contracted to receive as a part of the
electronic business relationship created pursuant to E-Sign or
prior legislation.
This will have a significant negative impact on the
potential growth of electronic delivery of financial services
and other relationships with e-commerce. S. 630 currently does
nothing to prevent this from happening. It is in the interest
of all who seek to promote e-commerce to preserve the sanctity
of electronic contracts. If the electronic message, which is
not a UCE, and is not going to be delivered, at a minimum both
the sender and the recipient should be notified by the ISP. We
hope to work with the ISPs and with your Committee as
appropriate to develop standards to assure reliable delivery of
permission-based electronic communications, and we believe this
is a goal that is complementary to and as important as getting
rid of spam.
Certain provisions of your legislation could, as we say in
our written testimony, benefit from clarification. If time
permitted, I would go into those, and I would be happy to
answer questions. We are very pleased to have had the
opportunity to comment on this legislation and look forward to
working as we have in the past with the Committee staff and
with you Senators to perfect this bill.
Senator Burns. We are looking forward to working with you
also. And we like the idea of bringing specifics to the table,
because that is the way we solve some of the problems as this
legislation moves along.
[The prepared statement of Mr. Buckley follows:]
Prepared Statement of Jeremiah S. Buckley, Jr., General Counsel,
Electronic Financial Services Council
My name is Jeremiah S. Buckley. I am a partner in the Washington
office of the law firm of Goodwin Procter, and I serve as general
counsel to the Electronic Financial Services Council. The EFSC is an
association of technology companies and financial service providers
dedicated to promoting the availability and delivery of financial
services through electronic commerce. Given this mission, the EFSC is
intensely interested in federal legislative developments that could
have an effect on e-commerce. For this reason, we are pleased to have
the opportunity to comment this afternoon on S. 630, the CAN-spam Act
of 2001.
The EFSC recognizes that federal legislation is not merely helpful,
but sometimes necessary to resolve legal uncertainties and unleash the
economic potential inherent in our new e-commerce environment. Thinking
back to the passage last year of the Electronic Signatures in Global
and National Commerce Act (``E-Sign''), we know that this Committee
shares our belief in the benefits of appropriate legislation. We have
enjoyed working with Senators Burns and Wyden in the past, and we look
forward to working with the Committee and its staff once again in
dealing with the very significant issue of unsolicited commercial
electronic mail (``UCE'').
We agree with the fundamental premise underlying S. 630--that
consumers should be protected from misleading, offensive, fraudulent or
otherwise harmful UCEs, and that the ability of consumers to control
the flow of their e-mail traffic should be respected. Achieving these
goals is an important step in assuring that consumers feel comfortable
using the electronic medium as a preferred way of doing business, a
goal we all share.
UCE Legislation Should Fit Into the Framework Created by Previous
E-Commerce Legislation
Congress has repeatedly endorsed a vision of e-commerce as a
national resource. Last year's passage of E-Sign legislation
established the parity of electronic and non-electronic communications
under federal law. E-Sign recognized that the Internet is a borderless
medium, for which federal regulation and uniform federal standards are
appropriate. Our specific comments reflect our strong support for this
vision of e-commerce as a national resource appropriately subject to a
set of uniform national rules designed to encourage the development of
e-commerce to its fullest potential.
S. 630 recognizes that legal uniformity is important to e-commerce,
and for that reason it includes a provision--Section 7(b)--preempting
inconsistent state laws. The preemption provision, however, has a
number of exceptions: in particular, it does not apply to any state
trespass, contract or tort law. This type of exception, we would
caution the Committee, runs the risk of swallowing the preemption
provision itself. If S. 630 is to fashion a uniform national standard
for dealing with spam, it should occupy the field. S. 630 should not
leave room for the development of a patchwork of state legislative or
judicial pronouncements using tort or trespass theories to create a
compliance jigsaw puzzle which only the most sophisticated players can
solve.
Having established a uniform federal standard, we believe that the
appropriate course is to assign to federal agencies the responsibility
for enforcing that standard. To the extent that enforcement policy
shapes or clarifies the meaning of the provisions of S. 630, it seems
to us best to leave that power with agencies which are subject to the
jurisdiction and direction of Congress. State attorneys general and
private parties should not be assigned enforcement responsibilities in
this area as a matter of federal law.
While the authority of a state to enact legislation inconsistent
with S. 630 would be preempted, states would, of course, continue to
have the power to enact unfair and deceptive acts and practices
(``UDAP'') statutes, or interpret their current UDAP statutes, so as to
define violations of S. 630 as unfair and deceptive practices under
state law. In this context, the states would be free to assign
enforcement responsibilities for their UDAP statutes to their state
attorneys general or such other agencies or private parties as they
deem appropriate. It seems to us that this course of action has the
advantage of providing a clear line of demarcation between state and
federal law and is more respectful of the right of state legislatures
to determine how state law will be enforced within a state's
boundaries.
Need for Clear Definitions
Section 5(a)(5)(A) of S. 630 requires that a UCE contain a ``clear
and conspicuous . . . identification that the message is an
advertisement or solicitation.'' Because of the centrality of this
requirement to the purposes of S. 630, we believe that the Committee
should consider a more precise definition of what constitutes clear and
conspicuous identification. It might be worthwhile for the Committee to
consider creating a standard indentifier to appear in the e-mail
subject line, to serve as a universal signal that the e-mail is an
advertisement. This requirement could then be included in the
legislation itself, or provided as an example in the Committee's
report. In the absence of such clear guidance, senders of UCEs will be
left uncertain as to the efficacy of their compliance efforts.
Likewise, we would counsel against the use of undefined terms, such
as ``primarily'' to determine the amount of advertising content that
defines a ``commercial electronic mail message.'' If, in a
communication relating to a transaction with its customers, a firm
includes an electronic ``statement stuffer'' alerting the customer to
other products or features available to the customer, S. 630 does not
establish how much such material will render the communication
``primarily'' advertising. We would recommend that, to avoid this
problem, any communication related to a transaction or relationship
with an existing customer be excluded from the definition of a
``commercial electronic mail message.''
Preserving the Reliability of E-Mail Communications
Last year's E-Sign Act was a vote of confidence by the Congress in
the predictability and reliability of electronic communications. E-Sign
envisions that individuals and businesses will be able to contract
freely through electronic media, without having to worry about the
enforceability of contracts that they enter into electronically. It
also envisions that business will continue to be conducted
electronically after the initial contracts have been signed, with
records being freely transmitted in fully electronic relationships if
the parties so desire. In the non-electronic world a third party cannot
arbitrarily disrupt a contractual arrangement between two parties, and
E-Sign envisions that this should not be able to happen in e-commerce
either. However, we are concerned about reports that ISPs, in their
eagerness to help their subscribers avoid receiving unwanted UCEs, may
block e-mails that the subscribers not only want, but have specifically
contracted to receive as part of an electronic business relationship.
This result would have a significant negative impact on the potential
growth of electronic delivery of financial services. S. 630 does
nothing to prevent this from happening, and does not even require ISPs
to give notice to consumers they intend to block, or that they have
blocked, the transmission of e-mail either in general or from
particular senders.
It is in the interest of all who seek to promote e-commerce to
preserve the sanctity of electronic contracts. If an electronic message
which is not a UCE is not going to be delivered, at a minimum both the
sender and the recipient should be notified by the ISP. We hope to work
with ISPs and with your Committee, as appropriate, to develop standards
that assure reliable delivery of permission-based electronic
communications.
We appreciate the opportunity to share our views on S. 630 and the
willingness of the sponsors of this legislation and their staffs to
work with us and others to assure that the CAN-spam legislation will
create clear and workable standards to regulate the transmission of
UCEs.
Senator Burns. Mr. David Moore, President and CEO of 24/7
Media. New York.
STATEMENT OF DAVID MOORE,
PRESIDENT/CEO, 24/7 MEDIA
Mr. Moore. Good afternoon. I am David Moore. I am the CEO
of 24/7 Media, and I'd like to thank Chairman Burns, the
Ranking Member, Senator Hollings, Senator Wyden, and Members of
the Committee for inviting 24/7 Media to participate today.
I would like to begin by commending Senators Burns and
Wyden for their leadership in crafting the Unsolicited
Commercial E-mail Act of 2001. This bill represents a
responsible, common-sense approach to establishing standards
for commercial e-mail practices and is an important first step
in helping to protect consumers and legitimate marketers from
the abuses of spammers.
As a leading provider of online marketing and advertising
solutions and services, 24/7 Media's clients have included such
notable businesses as Reuters, The Economist, USA Today,
American Express, Law.com, MSNBC, General Motors, Verizon,
AT&T, and The Financial Times, to name a view. We provide a
valuable service to consumers by delivering content that they
have requested, such as news, newsletters, real-time stock
quotes, and other information.
The success of the interactive industry lies in the
confidence of the relationship among content publishers,
service providers, marketers, advertisers, and consumers. We
support permission-based communications that empower consumers
with notice and choice.
The interactive marketing industry has been tainted by the
actions of disreputable marketers who use deceptive practices
in sending unsolicited commercial electronic e-mail. These
marketers, or spammers, should not be allowed to infringe upon
or negatively influence the need for legitimate commerce to
prosper in the online world. The Committee and Congress should
focus on legislation this year that specifically addresses the
problem of fraudulent, misleading, forged, and inaccurate e-
mail communications. These practices are an encroachment on the
rights and privacy of consumers.
24/7 Media, along with other companies, has worked
diligently over the past year to establish and to put into
effect guidelines and practices that will enable the Internet
to prosper as the world's leading communication, educational,
and information tool.
24/7 Media has an interest in minimizing spam. We maintain
one of the largest, permission-based e-mail databases and
generate a significant portion of our revenue from list
management and brokerage, as well as from our e-mail service
bureau, 24/7 Exactis. We recognize that respecting the privacy
rights of consumers will help us sustain our long-term business
model.
Let me tell you more specifically how we conduct our
business. We don't spam. We don't allow our clients to spam. We
include a functioning return e-mail address in all e-mail
deliveries. We don't use deceptive subject headings. We always
provide clear and conspicuous notice for consumers to opt-out.
We don't do business with any business that distributes
pornography.
I am proud to say that 24/7 Media's level of accuracy in
delivering the appropriate content to the consumer is
exceptional. During a 6-month period last year, 24/7 Exactis
received 1 complaint for every 16,000 e-mails delivered. That
is .000625 percent. Most client lists in fact generated no
complaints at all. We also found that in most instances, if
there was a complaint, the complaint was resolved soon after
the subscriber was reminded of how the marketer obtained their
e-mail address.
From 24/7 Media's point of view, the Burns-Wyden bill
appropriately focuses on e-mail abuse. These spammers devalue
our own efforts and weaken the consumer confidence that is so
important for all online businesses to succeed and flourish. We
also believe that enforcement mechanisms should deter spammers
from encroaching on the privacy of consumers and not penalize
legitimate markets who are adhering to the standards.
In announcing the introduction of this bill on March 27th,
Chairman Burns said, for many people, spam is ruining their
online experience and their ability to use e-mail. It is high
time for Congress to act to protect consumers from overzealous
marketers. I agree with that sentiment, and I invite the rest
of our industry to stand behind this effort to support
responsible practices and continue to provide value to the
consumer. Mr. Chairman and the Committee, I thank you again for
the opportunity to participate in today's hearing. This is a
complex policy challenge that must accommodate evolving
technologies and business models. We look forward to working
with you to fine tune this legislation. 24/7 Media remains
committed to engaging lawmakers on key policy issues and
recognizes that regulation of commercial e-mail practices is
only one of many key decisions this Committee will have to sort
through in the future.
We look forward to continuing to work with you and to be a
resource to you as you consider Internet-related policy and
work toward our common objective of protecting the rights and
privacy of all consumers while at the same time ensuring the
long-term viability of the Internet and legitimate web-related
businesses. Again, thank you for your time and I look forward
to your questions.
Senator Burns. Thank you very much. We appreciate your
testimony here today, Mr. Moore. What is it 24/7 Media covers
24 hours a day, 7 days a week?
Mr. Moore. We are always in business.
Senator Burns. Always in business. You know, up in Montana,
you know, on the shield of the state patrol is 3-7-77, 3-day,
7-day, 77. We don't know what that stands for. But I will tell
you this. It is not a bad idea. That was the number the
vigilantes used years ago before we were a state. We were a
territory, vigilantes made the law and if you came home and
that number was written on your door, you had 24 hours to
shuffle along. You know. And they weren't kidding either. They
were pretty serious about it. Thank you for coming today.
[The prepared statement of Mr. Moore follows:]
Prepared Statement of David Moore, President/CEO, 24/7 Media
Good Afternoon, I am David Moore, CEO of 24/7 Media.
I'd like to thank Chairman Burns and the Ranking Member, Senator
Hollings and Members of the Committee for inviting 24/7 Media to
participate today and would like to begin by commending Senators Burns
and Wyden for their leadership in crafting the ``Unsolicited Commercial
E-mail Act of 2001''. This bill represents a responsible, common-sense
approach to establishing standards for commercial e-mail practices and
is an important first step in helping to protect consumers and
legitimate marketers from the abuses of spammers.
As a leading provider of online marketing and advertising solutions
and services, 24/7 Media's clients have included such notable
businesses as Reuters, The Economist, USA Today, American Express,
Law.com, MSNBC, General Motors, Verizon, AT&T, The Financial Times, and
Disney to name a few. We provide a valuable service to consumers by
delivering content they have requested such as news, real-time stock
quotes, and other information.
The success of the interactive industry lies in the confidence of
the relationship among content publishers, service providers,
marketers, advertisers, and consumers. We support ``permission-based''
communications that empower consumers with notice and choice.
The interactive marketing industry has been tainted by the actions
of disreputable marketers who use deceptive practices in sending
unsolicited commercial electronic mail. These marketers, or spammers,
should not be allowed to infringe upon or negatively influence the need
for legitimate commerce to prosper in the online world. The Committee
and Congress should focus on legislation this year that especially
addresses the problem of fraudulent, misleading, forged and inaccurate
e-mail communications. These practices are an encroachment on the
rights and privacy of consumers.
24/7 Media, along with other companies, has worked diligently over
the past year to establish and put into effect guidelines and practices
that will enable the Internet to prosper as the world's leading
communication, educational and information tool.
24/7 Media has an interest in minimizing spam. We maintain one of
the largest, permission-based e-mail databases and generate a
significant portion of our revenue from list management and brokerage
as well as from our e-mail service bureau, 24/7 Exactis. We recognize
that respecting the privacy rights of consumers will help sustain our
long-term business model.
Let me tell you more specifically how we conduct our business:
We don't spam.
We don't allow our clients to spam.
We include a functioning return e-mail address in all e-mail
deliveries.
We don't use deceptive subject headings.
We always provide clear and conspicuous notice for consumers to
opt-out.
We don't do business with any business that distributes
pornography.
I am proud to say that 24/7 Media's level of accuracy in delivering
the appropriate content to the consumer is exceptional. During a 6
month period last year, 24/7 Exactis received 1 complaint for every
16,000 e-mails delivered. Most client lists, in fact, generated no
complaints at all. We also found that in most instances, if there was a
complaint, the complaint was resolved soon after the subscriber was
reminded of how the marketer obtained their e-mail address.
From 24/7 Media's point-of-view, the Burns-Wyden bill appropriately
focuses on e-mail abuse. These spammers devalue our own efforts and
weaken the consumer confidence that is so important for all online
businesses to succeed and flourish. We also believe that enforcement
mechanisms should deter spammers from encroaching on the privacy of
consumers and not penalize legitimate marketers who are adhering to the
standards.
In announcing the introduction of this bill on March 27, Senator
Wyden said: ``. . . Spam could have a significant negative impact on
how consumers use Internet Services and e-commerce. This legislation
strikes at unscrupulous individuals who use e-mail to annoy and
mislead''. I agree with that sentiment and I invite the rest of our
industry to stand behind this effort to ``strike out at the
unscrupulous'', support best industry practices and continue to provide
value to the consumer.
Mr. Chairman and the Committee, I thank you again for the
opportunity to participate in today's hearing. This is a complex policy
challenge that must accommodate evolving technologies and business
models. We look forward to working with you to fine-tune this
legislation.
24/7 Media remains committed to engaging lawmakers on key policy
issues and recognizes that regulation of commercial e-mail practices is
only one of many key decisions this Committee will have to sort through
in the future. We look forward to continuing to work with you and to be
a resource to you as you consider Internet-related policy and work
toward our common objective of protecting the rights and privacy of all
consumers while at the same time ensuring the long-term viability of
the Internet and legitimate web-related businesses.
Again, thank you for the time and I look forward to your questions.
Thank you.
Senator Burns. Mr. Jason Catlett, President and CEO of
Junkbusters. Yes, Junkbusters. There you go. Thank you for
coming today.
STATEMENT OF JASON CATLETT,
PRESIDENT/CEO, JUNKBUSTERS CORP.
Mr. Catlett. Thank you, Senator. And it is a pleasure to be
back before you and Senator Wyden again. I'd like to begin with
two issues that you raised.
First, the technology arms race that is going on between
spammers and largely ISPs who are using technological means to
try to abate the amount of spam from their networks before it
reaches the spammer's intended recipients. That is a silent
battle that goes on continuously and if it were stopped as we
have heard earlier testimony suggesting a measure that might do
it, this would cause an enormously greater amount of spam to
reach the end consumers, so technological means for
automatically spam filtering are tremendously important and do
a lot of good.
However, you are absolutely correct that this is not a
solution to the problem. And that ultimately it is essential to
have laws to stop the attempts of the spam to be inserted into
the network.
We heard from Senator Rockefeller about the question of
labeling. Is it sufficient to label the material? Well, I can
tell you as someone who has written scientific papers on
automatic text classification that those methods are always
imperfect and even if the spammers were perfectly honest in
their labeling of the material, it would still impose an
unacceptable burden on the network to try and reject each
article after checking the appropriate label.
The second point I would like to raise is the issue of
wireless spam which indeed has been a problem, particularly in
Europe where the technology is at a later stage of adoption,
but also in states such as Arizona, where a class action suit
on that is underway.
I would like to note that trade associations with the
wireless industry have come out strongly in favor of an opt-in
criteria that you should never receive commercial solicitations
to your cell phone unless you have deliberately requested them,
and I think that is an admirable position for them to take.
I'd like to commend you on the hard work that you have done
on spam over a long period of time, and I am sorry to say that
in its present form, I don't think that the bill will achieve
the goals that it sets out to do. I don't think it will
significantly reduce the amount of junk e-mail that is sent,
and that two modifications would be necessary in order to have
a spam bill that really deserves the name of CAN-spam, and
those two were issues raised by Senator Rockefeller.
The first is opt-in. The appropriate criterion for e-mail
solicitation is opt-in. You should only get e-mail, commercial
e-mail if you ask for it, and that is what the majority of
people online believe are appropriate. It is also what a large
number of consumer groups believe to be appropriate, and it is
also the practice as we have heard from David Moore from 24/7
Media is the common industry practice only to send e-mail to
people who have asked for it.
Almost no legitimate established marketer sends unsolicited
commercial e-mail because it is despised by consumers and it is
actually against the terms of services of most ISPs. So the
first suggestion I would have to you is to make the criterion
opt-in. This has worked very well with the Telephone Consumer
Protection Act as we have heard discussed for junk faxes and I
think that the success of that bill should be an example to us,
particularly the provision to do with my second point, which is
a private right of action for consumers. The idea of a
waterfall of frivolous litigation simply isn't borne out in
practice under the Telephone Consumer Protection Act. There is
very little litigation on junk faxes. But it is a sufficient
amount to discourage businesses systematically violating the
law.
The idea of not allowing consumers the opportunity to
protect their interests and hoping that the ISPs, some of whom
are going bankrupt, will spend additional money to go to court
for their individual consumers, I think it is very naive.
The appropriate thing to do is to give individuals the
means to protect their own interests, and that is being done
with the junk faxes because of the same situation. This is
postage due marketing.
Senator Burns. You believe in the vigilantes, too, huh?
Mr. Catlett. The consumers should be able to act with the
authority of law in an appropriate manner. Some spams do make
me want to go to the vigilante state. In fact, I would like to
read you a particular spam that I picked out almost at random
under a specific criterion. It is a little bit like at a
hearing on locust plagues to bring along a single grasshopper
and hold it up for the Committee and say this is the problem,
but imagine multiplied a million times the problem. It is in
the, my prepared statement, but I'll read you briefly this
spam. Sex sells really works. ``Why pay to belong to an adult
website? When you can own your own for less than the cost of a
membership. Anyone with an Internet connection can own an adult
website for less than the cost of the next dinner. No
experience required. Anyone can sell sex on-line in just
minutes.''
I'll spare you the details of how to sign up for this
offer, but I'd like to draw your attention to the footer of
this e-mail, which is very common. This message is sent in
compliance of the new e-mail bill, section 301 paragraph
(a)(2)(C) of Senate 1618. It again gives a URL for the website
of your colleague, Senator Mikulski.
I would like you to imagine perhaps with your folks back at
home in Montana when a mother discovers that her teenage son
has received this solicitation to establish a pornographic
website from the comfort of his own bedroom and then they, this
person clicks through to Senator Mikulski's site and sees, this
is the legislation, this is in fact Mikulski's bill. It did not
pass but spammers still use it and if you pass a junk e-mail
bill along the lines of an opt-out, you will get exactly the
same situation.
You will get the mother saying is it the policy of the
United States that spammers may spam? They are going to click
through to your website, then click on contact us, and you are
going to get questions and letters from your constituents and I
wonder how you are going to answer them.
With the current form of the Senate bill, would you have
to, when the mother asks you, is it true, is what this spammer
says true, that it is Okay for him to send this e-mail, would
you have to answer something like yes, the spammer can send you
as much e-mail as he wants until you tell him to stop, and if
they don't stop, if they keep on doing it, then you can't do
anything about it yourself. You have to either get your ISP to
do something or you have to get the Federal Government
department to do something.
Now, I don't think that is an answer that your constituents
would want to hear. The answer that I think you would want to
be able to give to them is something like this. The spammer is
lying. My bill made spamming illegal. And it gives you the
right to sue people who spam you if they break the law.
So the correct policy, I think, and I have made the two key
points, is to have an opt-in policy and to have a private right
of action for consumers. So the question of opt-in versus opt-
out and the private right of action really comes down to if
your name goes on this bill and it becomes law, do you want it
associated in the spams that are sent out in this case with so
much spamming?
Senator Burns. Thank you very much. And your full statement
will be made part of the record.
Mr. Catlett. Thank you, sir.
[The prepared statement of Mr. Catlett follows:]
Prepared Statement of Jason Catlett, President/CEO, Junkbusters Corp.
My name is Jason Catlett, and I am President and CEO of Junkbusters
Corp. I'm grateful for this opportunity to speak with you again.
Junkbusters is a for-profit company whose mission is to free people
from unwanted commercial solicitations through media such as e-mail,
physical mail, telephone, and faxes. Since our web site launched in
1996, millions of people have turned to us for information, services
and software for stopping junk messages, particularly e-mail. I have
worked advising government departments and legislators on e-mail and
other privacy issues since 1997.
As a technologist--my Ph.D. was in Computer Science--my initial
inclination years ago was towards solutions based on technology and
administrative processes. But years of practical experience with large
numbers of consumers have led me to believe that the essential
requirement for the collective protection of privacy is strong rights
for the individual. Thanks to the private right of action in the
Telephone Consumer Protection Act of 1991, junk faxes are today rare
compared to junk e-mail, a result achieved without any vast government
bureaucracy, and with little frivolous litigation. In contrast,
billions of unwanted e-mail solicitations are sent each day, vexing
hundreds of millions of people who feel unable to stop it. This reduces
participation in online commerce and erodes the considerable benefits
that responsible e-mail marketing offers to consumers and businesses.
What is needed to reverse this harm to consumer confidence in the
medium is a law establishing an opt-in standard for commercial e-mail,
and a private right of action for recipients and network operators. S.
630 would establish an opt-out standard and lacks a private right of
action, and in my opinion would not improve the situation it addresses.
Before focusing on the specifics of spam, I would like to briefly
review the unhappy recent history of online privacy more generally. In
the 11 months since I appeared before you in May, the prevailing level
of privacy on the Internet appears to have lowered. (Space allows only
a few brief examples, for greater detail see http://
www.junkbusters.com/testimony.html on the Web.)
Ever more intrusive collection technologies are being rolled
out. Profiling companies are continuing development of their
Consumer Profile Exchange technology without any committment to
observe fair information practices in their use of it.
Most ``privacy policies'' offered by companies still offer
little privacy, and appear to be getting even worse, according
to one longitudinal study by Enonymous.
In September Amazon.com substantially weakened its privacy
policy.
The standards proposed by DoubleClick and a few other online
advertising companies and sanctioned by the FTC in July are
deplorably low.
P3P, which has been billed by some as the pot of privacy
gold at the end of the technological rainbow, is now being used
by Microsoft as an excuse not to fix the default settings on
its next browser that allows tens of millions of web bugs to
gather click streams in volumes of billions of clicks per day.
At a public workshop run by the Federal Trade Commission in
March, the major profiling companies refused to allow people
access to their own profiles, or even to provide example
profiles.
With this background, and with spam as a regular reminder to
consumers of the ease with which personal information can be misused
and the difficulty of individual redress, few would be surprised by the
conclusion that privacy concerns have severely dampened the growth of
e-commerce (certainly not any Member of this Committee). Over the past
year, its spectacular triple digit growth has dropped to such
disappointing levels that many online merchants are struggling to break
even, finding difficulty attracting investment, or filing for
bankruptcy. Yesterday's Wall Street Journal reported that most U.S.
households have never made a purchase online. Of consumers who place
items in online shopping carts, the majority are still abandoning the
transaction before checkout. Online merchants have known for years that
the number one concern here is fear for privacy. Furthermore, Forrester
Research has found in extensive polling that concerns about privacy are
not being assuaged as people gain more years of experience online. In
my own discussions with online marketers whom I know from consulting
engagements or from industry conferences, spam is despised as the major
cause of damage to consumer confidence and participation.
The failure to control spam is the greatest economic tragedy of the
Internet age. E-mail marketing conducted in a fair, consensual manner
offers enormous benefits to consumers and businesses alike,
particularly to small businesses who could not afford the expense of
traditional media. As e-mail marketing becomes synonymous with spam--a
tragedy because this is unnecessary and avoidable--many consumers are
deciding simply not to participate. The right public policy for spam,
as with all privacy law, is to give people who participate rights to
ensure their personal information is not used unfairly. This promotes
both greater participation and better business practices.
Almost no reputable marketer routinely sends e-mail on an opt-out
basis. (A few have occasionally done so in error; this is perhaps the
reason some companies oppose a private right of action, which would
hold them accountable for such mistakes.) It is deplorable that certain
trade associations such as the Direct Marketing Association are trying
to hold the door open for spamming. H. Robert Wientzen, President and
CEO of the DMA addressed members at the organization's 1998 conference
with the following words: ``Let me begin by recognizing that bulk
unsolicited commercial e-mail is not real popular with consumers. And
to date, very few of you are employing it. However, we also feel that
most of those who push for an opt-in-only regime have very little
understanding of the incredibly negative impact it would have on the
future use of e-mail as a marketing tool.'' The DMA continues to
indulge in its fantasy of cyberspace as a world of free paper, free
printing and postage-due delivery of solicitations, failing to realize
that if it had its way, consumers would rebel or flee.
Opt-in is the right policy for marketing by e-mail, and is
consistent with successful legislation on marketing by fax. As in the
TCPA, the definition of a commercial message should of course be
carefully limited to avoid any impact on non-commercial speech, such as
speech about religion or politics. The opt-in approach taken in the
TCPA for faxes, cellphones and 800 numbers has as its basis the fact
that the recipient may incur costs for receiving the unsolicited
message. This is also the case for spam, so the opt-in criterion is
therefore equally appropriate. The fact that in some situations
recipients appear to incur negligible incremental costs from a specific
spam does not change the fundamental fact that spam is postage-due
marketing.
The TCPA's prohibition against telemarketing calls to cellular
telephones is not qualified any exemption for situations such as when
the carrier offers the first incoming minute free or where the
subscriber has excess minutes available for the particular month. That
would be as silly as a spam law that said that people whose Internet
service plans include unlimited hours are disqualified from monetary
damages. Nor is there any exemption in the TCPA for fax-modems where no
paper is consumed, a situation closely resembling junk e-mail. Despite
the fact that a spam recipient often cannot produce a specific line
item from a bill relating to the spam, costs are being incurred by
individuals, as well as being diffused among consumers. Of course in
many situations the cost can be quantified, such as on certain usage-
based tariffs, or when dialing up from a hotel room. In some cases
these direct costs exceed the cost of paper for a junk fax or 15
seconds on an 800 number.
Furthermore, spam imposes a hidden tax on all Internet users by
increasing network capacity requirements and requiring additional
administrative costs at ISPs. I estimate this cost at around one dollar
per month for the average subscriber, and billions of dollars per year
including institutional buyers of network services. Because ISPs absorb
this as a cost of doing business, this expense is not visible to
individual consumers, but it is certainly passed on to them. An opt-in
policy would reduce this spam-subsidizing tax, lower the cost of
Internet access, and stimulate demand for Internet services and e-
commerce.
A opt-out policy that allows each spammers one free spam is like
permitting shoplifters to steal items until each store requests that
they cease thieving. It imposes unfair burdens: in both cases, even
people who are not directly victimized incur costs through higher
prices. More than a million businesses have Internet access; if even 10
percent of them sent a single message to half of online U.S. households
over a period of 5 years, the American homes would receive an average
of 27 spams per day. The opt-out model is simply inappropriate and
unsustainable for the Internet. If opt-out spam were to prevail, e-
mail, the killer application of the Internet, would become the
application that killed the Internet.
Consider an excerpt from an actual spam and imagine the reaction of
a constituent in Alaska reading after downloading it via a toll call.
(Of course, it's also important to remember that billions like it may
have been sent to millions of people, so focusing on a single specimen
is rather like examining a single dead grasshopper at a Senate hearing
on locust plagues, but imagine your reaction multiplied to an
appropriate scale.) Here is the spam:
SEX SELLS!!! REALLY WORKS!!!
``Why Pay To Belong To An Adult Web Site When You Can Own Your Own
For Less Than The Cost Of The Membership?''
``Anyone With An Internet Connection Can Own An Adult Web Site For
Less Than The Cost Of Their Next Dinner!''
``No Experience Required! Anyone Can Sell Sex Online In Just
Minutes!''
[extraneous detail deleted]
This message is sent in compliance of the new e-mail bill: Section
301. Per Section 301, Paragraph (a)(2)(C) of S. 1618, http://
www.senate.gov/\murkowski/commercialemail/
Claims of compliance such as the one at the end of this spam have
become all to familiar to Internet users, and have been examined in the
Wall Street Journal. A key goal of spammers is to gain an appearance of
legitimacy, and many have turned to boasting their compliance even with
bills that never became law. Some bills from the current congress may
already have been used in this manner. The sponsors of these bills may
want to consider how they will respond to irate voters who click
through to their congressional web sites. When you receive a letter
from a constituent angered by the solicitation sent to her teenage son
to become a pornographer from the comfort of his own bedroom, how will
you answer her question ``Is this junk e-mail really obeying your
law?'' The answer will depend on the kind of bill you pass. As S. 630
stands, you would have to answer something like this: ``Yes. Every
spammer can send you at least one spam, and it's up to you to tell each
separate spammer to stop. If they don't, you can't do anything about it
yourself, you have to hope that a government agency will do something
for you.'' Is that answer likely to please your constituents? A better
answer, which you could give if you pass an amended or different bill,
would be ``The spammer is lying. My bill made spamming illegal, and it
gives you the right to sue the spammer if they break the law.''
Of course spammers are less likely to draw the attention of their
victims to such a law. But if you pass a weak spam bill, the bill
number and your name will surely be cited in vast numbers of junk e-
mails for years to come. So when you consider the key questions of opt-
in vs opt-out and whether to include a private right of action, think
of these two alternatives: Do you want your name to be remembered as
the lawmaker who said ``spamming is wrong''? Or do you want it to
become the name that launched a trillion spams?
I appreciate the opportunity to speak before you today. Now I would
be pleased to answer your questions.
Senator Burns. Mr. Harris Pogust. Looks like a law firm to
me.
Mr. Pogust. That's correct, Mr. Chairman.
Senator Burns. From New Jersey. Thank you for coming today.
Thank you for joining us.
STATEMENT OF HARRIS L. POGUST, ESQ., PARTNER, SHERMAN,
SILVERSTEIN, KOHL, ROSE AND PODOLSKY
Mr. Pogust. I am an attorney from Pennsauken, New Jersey. I
work in a small firm which represents over 2000 small
businesses in the Philadelphia and southern New Jersey area.
Over the last several years, my practice has focused on
technology-related issues. It is only because of the disturbing
rise in spamming which has begun to cost my clients valuable
time and expense that I have become involved with this issue.
I am here today, Senators, representing those small
business men and women who had suffered commercial loss and
other economic damages as a result of the conduct of entities
that transmit thousands upon thousands of junk e-mails on a
daily basis. This junk mail clogs the Internet and takes up
valuable space on my clients' computer systems. Takes up
valuable employee time and costs my clients hundreds and in
some instances thousands of dollars a year in unnecessary and
unwanted expenses.
As the Internet has grown, the problem of unsolicited e-
mail has increased to the point of where it has become an
intolerable burden on my clients, as well as myself. I commend
you for identifying this issue as an important concern for the
Subcommittee's oversight agenda, yet this is not the first time
that Congress has had to address the problem associated with
the introduction of new technologies in the workplace. Ten
years ago when fax machines first became increasingly prevalent
in the offices across the country and on Capitol Hill, Congress
enacted the Telephone Consumer Protection Act in response to
the overwhelming volume of unsolicited faxes being sent. The
TCPA prohibits any person from using any telephone, fax
machine, computer or other device to send an unsolicited
advertisement to a telephone fax machine.
Among other provisions, the law provides a private right of
action and there is a broad consensus that the TCPA has
certainly curtailed the volume of junk faxes received in this
country.
In spite of some predictions to the contrary, when this
piece of legislation became law, it did not result in a
proliferation of litigation. What did occur was that millions
of unwanted junk faxes were no longer being sent as the
deterrent effect of a private right of action took hold. The
concerns addressed in the TCPA are the identical concerns that
S. 630 is seeking to address. The TCPA has saved businesses
millions of dollars in unwanted overhead expenses and has been
a valuable tool in fighting unwanted faxes by allowing a
private right of action for damages, as well as injunctive
relief.
The threat of possible litigation in and of itself has
clearly been a deterrent to those whom have thought about
violating the junk fax law. While I applaud this Subcommittee's
effort to attempt to curb this latest abuse of technology,
spam, there is one aspect of the bill that I, along with
others, would like to see changed.
I am concerned that this bill does not provide a private
right of action for many small businesses and individuals who
have faced lost time or money due to these unsolicited e-mails
filling their in boxes.
While I believe Congress must approach this issue in a
balanced fashion and I support the comprehensive enforcement
measures already proposed in S. 630, I also believe that there
will be some cases in which an individual or business must
directly seek recovery to address the economic harm they have
suffered.
The largest Internet service provider, AOL, has estimated
that 30 percent of its e-mail is spam. What is the effect of
this abuse on the Internet? One result is the system-wide drag
on the entire information highway costing the users the most
valuable asset they have, their time. Another result is the
millions of dollars citizens are collectively paying to their
Internet service provider for the increased usage time that is
required to read and delete these unwanted e-mails.
Unfortunately, under the proposed legislation, there is no
way for these businesses and individuals to recoup the money
that they have lost and continue to lose related to spam. It is
my hope that with further consideration the Subcommittee will
provide such a remedy as was done in the case of the TCPA.
It may be that on first impression one might surmise that
the ISPs are the ones that are most damaged by junk e-mails.
They suffer the increased expense in trying to filter out these
unwanted e-mails and are required to spend money to provide
additional bandwidth to provide optimal service to their end
users.
But these ISPs already have a way to recoup these
additional expenses. They charge their end users. This is
exactly what many of the ISPs have done. Netcom Online
communications services, a mid-sized Internet service provider,
has stated that a conservative estimate of the cost to our
customers to support spam is approximately 10 percent of their
monthly bill.
Customers also pay fees to the ISPs for the additional
connect time, as Senator Burns stated in his statement. It is a
long distance phone call and the additional time costs the
consumer money.
Pursuant to S. 630, the ISPs are not only permitted to
recoup their additional expenses from the end users, but they
are also entitled to sue the entity which sent the unwanted e-
mails. Yet what incentive would the ISP have to spend
potentially hundreds of thousands of dollars in legal expenses
to go after the spammer when they can just charge the end users
for this additional cost of doing business?
Who is left holding the bag and paying for the millions of
dollars in damages which spamming causes? My business clients
and the millions of other citizens throughout the country who
use the Internet. What recourse did they have for footing this
bill? I think the answer is none. The question I have is why?
If the concern is that every Internet user will race to the
courthouse and file suit against a spammer, such a concern is
misplaced. As noted above, the TCPA resulted in a significant
reduction in the number of junk e-mails sent without a rush to
the courts. Moreover, the Act only provides for recovery of
actual damages suffered unless egregious conduct is involved.
In May of last year, Senator Lieberman stated spam
undermines the viability of the Internet by burdening service
providers who are forced to pass on the cost of funding spam to
consumers. Our objective is not to strangle the Internet with
government regulation or ban spam outright. Rather, we simply
set out to give individuals control of their own e-mail
accounts and to address the cost shifting problem brought by
the proliferation of spam.
In this situation, it is critical that consumers be allowed
to recover their full actual damages, whether that is the cost
to replace a computer, a computer program that has been damaged
as a result of excessive spamming or lost earnings resulting
from clogged e-mail systems. These are concrete improvable
damages. They are not speculative in the least.
Since it is impossible for Congress to predict the full
range of possible damages suffered by consumers and small
businesses, these damages should not be limited and just as in
the TCPA to deter egregious behavior, the bill should also
include some type of financial penalty for violations of this
anti-spam bill. Without such a penalty, the entity sending
these unsolicited e-mails might determine that it is
financially worthwhile it continue to violate the law so long
as they do not reach a volume likely to damage most computers
or software.
Mr. Chairman, Senator Wyden, thank you again for allowing
me to testify here today. I salute your consideration of this
important issue and hope it will be possible to ensure that
businesses and individual users of the Internet are not made to
suffer economic harm without fair and balanced redress. I would
be happy to answer any questions you may have.
Senator Burns. Thank you and we appreciate your testimony
today.
[The prepared statement of Mr. Pogust follows:]
Prepared Statement of Harris L. Pogust, ESQ., Partner, Sherman,
Silverstein, Kohl, Rose and Podolsky
Chairman Burns, Senator Hollings and distinguished Senators, it is
an honor to appear before you here today.
My name is Harris Pogust, and I am an attorney from Pennsauken, New
Jersey. I work at a small firm which represents over 2,000 small
businesses in the Philadelphia and Southern New Jersey areas. Over the
last several years my practice has focused on technology-related
issues. It is only because of the disturbing rise in spamming, which
has begun to cost my clients valuable time and expense, that I have
become involved with this issue.
I am here today, Senators, representing those small businessmen and
women who have suffered commercial loss and other economic damages as a
result of the conduct of entities that transmit thousands upon
thousands of junk e-mails on a daily basis. This junk mail clogs the
Internet and takes up valuable space on my clients' computer systems,
takes up valuable employee time, and costs my clients hundreds, and in
some instances thousands of dollars a year in unnecessary and unwanted
expenses. As the Internet has grown, the problem of unsolicited e-mails
has increased to the point of where it has become an intolerable burden
on my clients as well as myself. I commend you for identifying this
issue as an important concern for this Subcommittee's oversight agenda.
This is not the first time Congress has had to address the problems
associated with the introduction of new technologies in the workplace.
Ten years ago, when fax machines first became increasingly prevalent in
offices across the country, and on Capitol Hill, Congress enacted the
Telephone Consumer Protection Act (``TCPA'') (47 U.S.C. Sec. 227) in
response to the overwhelming volume of unsolicited faxes being sent. At
that time, Congress decided to draw the line and let the senders of
these unwanted faxes (in the form of solicitations and other
questionable promotions) know that they could not continue their
intrusive practices, which were clogging fax lines and wasting costly
paper and employee time at small and large businesses alike.
The TCPA prohibits any person from using any telephone fax machine,
computer or other device to send an unsolicited advertisement to a
telephone fax machine. Among other provisions, the law provides a
private right of action and there is broad consensus that the TCPA has
certainly curtailed the volume of junk faxes received in this country.
In spite of some predictions to the contrary, when this piece of
legislation became law, it did not result in a proliferation of
litigation. What did occur was that millions of unwanted junk faxes
were no longer being sent as the deterrence effect of a private right
of action took hold. The concerns addressed in the TCPA are the
identical concerns that this legislation is seeking to address. The
TCPA has saved businesses millions of dollars in unwanted overhead
expenses and has been a valuable tool in fighting unwanted faxes by
allowing a private right of action for damages and injunctive relief.
The threat of possible litigation in and of itself has clearly been a
deterrent to those who may have thought about violating the junk fax
law.
The TCPA allows any person to bring suit in state court to enjoin a
violation of the Act and to recover their actual monetary losses from
such violations or they may seek a $500.00 penalty for each violation,
whichever is greater. Additionally, the courts are authorized to award
treble damages for egregious conduct--that is, where there are willful
or knowing violations. Unfortunately, the pending legislation provides
no such remedy to small businesses and individuals that suffer actual
commercial consequences from junk e-mails filling their online
mailboxes.
While I applaud this Subcommittee's efforts to attempt to curb this
latest abuse of technology--spam--there is one aspect of this bill that
I, along with others, would like to see changed. I am concerned that
this bill does not provide a private right of action for the many small
businesses and individuals who have faced lost time or money due to
these unsolicited e-mails filling their inboxes. While I believe
Congress must approach this issue in a balanced fashion--and I support
the comprehensive enforcement measures already proposed in S. 630--I
also believe that there will be some cases in which an individual or
business must directly seek recovery to address the economic harm they
have suffered.
The largest Internet service provider, America Online, has
estimated that 30 percent of its e-mail is spam. America Online has
stated that it was receiving 1.8 million spams per day from one company
called Cyber Promotions. This continued until AOL obtained an
injunction to stop this practice. Assuming that it takes the normal
user 10 seconds to identify and discard a message, the end user was
required to pay for 5,000 hours per day of connect time. What is the
effect of this abuse of the Internet? One result is the system-wide
drag on the entire information highway costing users the most valuable
asset they have--their time. Another result is the millions of dollars
citizens are collectively paying to their Internet service providers
for the increased usage time that is required to read and delete these
unwanted e-mails.
Unfortunately, under the proposed legislation, there is no way for
these businesses and individuals to recoup the money they have lost and
continue to lose related to spam. My hope is that, with further
consideration, the Subcommittee will provide such a remedy, as was done
in the case of the TCPA.
It may be that, on first impression, one might surmise that the
JSPs are the ones that are most damaged by junk e-mails. They suffer
the increased expense in trying to filter out these unwanted e-mails,
and are required to spend money to provide additional bandwidth to
ensure optimal service to their end users. But, these ISPs already have
a way to recoup these additional expenses: charge their end users. This
is exactly what many of the ISPs have done. Netcom On-Line
Communication Services, a mid-sized Internet service provider, has
stated that: ``A conservative estimate of the cost to our customers to
support spam is approximately 10 percent of their monthly bill.''
Pursuant to 8.630, the ISPs are not only permitted to recoup their
additional expenses from the end user, but they will also be able to
sue the entity which sent the unwanted e-mails. Yet, what incentive
will the ISPs have to spend potentially hundreds of thousands of
dollars in legal expenses to go after the spammer when they can just
charge their end users for this additional cost of doing business? Who
is left holding the bag and paying for the millions of dollars in
damages which spamming causes? My business clients and the millions of
other citizens throughout the country who use the Internet. What
recourse do they have for footing this bill? None. The one question I
have is: ``Why''? If the concern is that every Internet user will race
to the courthouse and file suit against spammers, such a concern is
misplaced. As noted above, the TCPA resulted in a significant reduction
in the number of junk e-mails sent, without a rush to the courts.
Moreover, that Act only provides for recovery of actual damages
suffered unless egregious conduct is involved.
In May of last year, Senator Lieberman stated that: ``Spam
undermines the viability of the Internet by burdening service providers
who are forced to pass on the costs of fighting spam to consumers. Our
objective is not to strangle the Internet with government regulation or
to ban spam outright. Rather, we simply set out to give individuals
control of their own e-mail accounts and to address the cost-shifting
problems wrought by the proliferation of spam.''
In this situation, as well, it is critical that consumers be
allowed to recover their full actual damages--whether that is the costs
to replace a computer or computer program that has been damaged as a
result of excessive spamming, or lost earnings resulting from a clogged
e-mail system. These are ``concrete'' and ``provable'' damages--and not
speculative in the least. Since it is impossible for Congress to
predict the full range of possible damages suffered by consumers and
small businesses, these damages should not be limited. And just as in
the TCPA, to deter this egregious behavior, this bill should also
continue to include some type of financial penalty for violations of
this anti-spam bill. Without such a penalty, the entities sending these
unsolicited e-mails might determine it is financially worthwhile to
continue to violate the law, so long as they do not reach a volume
likely to damage most computers or software.
Mr. Chairman and Senator Hollings, thank you again for allowing me
to testify here today. I salute your consideration of this important
issue and hope it will be possible to ensure that business and
individual users of the Internet are not made to suffer economic harm
without fair and balanced redress. I would be happy to answer any
questions that you may have.
Senator Burns. And now we will hear from Mr. David McClure,
President and CEO of U.S. Internet Industry Association here in
town.
STATEMENT OF DAVID P. McCLURE, PRESIDENT/CEO, U.S. INTERNET
INDUSTRY ASSOCIATION
Mr. McClure. Chairman Burns, Senator Wyden, it is a
pleasure to be here to discuss with you the subject of
unsolicited commercial e-mail and to express the support of our
members for S. 630, the CAN-spam Act. I am especially pleased
to note that this legislation is the product of two of the most
respected technology legislators in the Senate today, yourself
and Senator Wyden. We know from our work with you in previous
issues that this has always resulted in the creation of well
crafted and sensible Internet policy.
My name is David McClure. I am President of the U.S.
Internet Industry Association, and we are the largest and
oldest trade association representing Internet commerce,
content and connectivity.
For the past 3 years, much of our effort has been taken up
with the subject of UCE. In a white paper authored by Jim
Butler and Andrew Flake, we outlined the problems that we
encountered when we attempted to craft a legislative solution
to spam and also the type of legislation that we believe is
going to help bring relief to the situation.
I don't need to tell you how serious the problem of spam
is. Congress already knows this. The Congressional Management
Foundation this month released a report that said last year,
Congress received 80 million pieces of e-mail, most of it
unsolicited bulk e-mail. That is double the previous year.
Nonetheless, while I don't need to tell you how serious the
problem is, I think we do need to discuss the problems inherent
in a legislative solution, and there are really two that we
need to address up front. The first is that in terms of sending
a single piece of unsolicited commerce e-mail, there is nothing
really illegal in the Act, and we may well have some
constitutional considerations in attempting to flatly ban it.
The second is more interesting in that we really can't
define what it is that we are talking about when we say
unsolicited commercial e-mail. We think we know what the term
``e-mail'' means, based on today's technology. It will change.
I am not certain that we can satisfactorily define what
``unsolicited'' means or even what ``commercial'' means.
And a couple of quick examples. Does it mean that Girl
Scouts who send out notices to their friends and neighbors of
cookies for sale should be sent to jail? Does it mean perhaps
that when the Red Cross sends an emergency notice of a need for
O positive blood that they are in violation of the law? These
are very difficult, difficult questions to answer, and we have
struggled with them for 3 years.
Nonetheless, in the absence of a legislative solution,
without the guidance of the law, we are left in a very
difficult situation in which abuses do take place in which
trade associations have their electronic newsletters to members
routinely blocked, in which members who provide services--and
this was referred to in the financial services industry--that
they are required under contract and under law to provide, can
find those communications blocked in the absence of any
guidance.
More problematical from our standpoint are the actions of
some black listers whose policies have in the past been
somewhat arbitrary and have resulted in people being literally
blocked from any kind of e-commerce. Good legislation is going
to resolve that.
In our white paper, we identified what we considered to be
four important things the legislation must do. First, it has to
let the marketplace do its job. The greatest problem with UCE
from our perspective is that it damages the network through its
sheer bulk and its timing, but these are mechanical problems
that can be resolved. And we believe that these are economic
situations that can be resolved, and the market will eventually
move to the kind of fee-based process that will resolve the
damage to the networks. Once that happens, we expect to see--
when e-mail is no longer free for bulk mailers--we will expect
to see the volume decline.
Second, let's crack down on fraud. It is estimated that
over 90 percent of spam is fraudulent. There is no excuse for
this. We have laws and we'll have now a stronger national bill
that requires people to identify who they are, where they come
from, to use real header information and real subject
information.
There are always going to be people who will not obey the
law. Let's turn the cold light of daylight on every commercial
message and woe be to the wicked. I believe that those people
who do not obey this law should be punished without mercy.
Third, support the acceptable use policies of ISPs. These are
well crafted policies. They are contracts that need to be
supported, and when that happens, we believe that you'll see
ISPs segregate themselves. Some will aggressively filter out
all bulk e-mail and their terms of use, their acceptable use
policies will notify consumers that that is what they wish to
do. Consumers then will have the choice of whether they wish to
use this or another ISP.
Finally, help marketers understand the word no. One of the
problems with direct marketing is that in spite of the very
best and well intentioned of legitimate marketers, there is
always somebody who doesn't know the meaning of the word no.
Opt-out should be simple, pervasive, and permanent.
Mr. Chairman, Senator Wyden, we are delighted to see that
you have crafted legislation that meets all four of these
points, and we believe that it is very important for the
Committee now to pass this legislation on to the floor of the
Senate to get it passed and move on to the House and put this
legislation into effect. We don't believe that it needs
extensive rewriting. It doesn't require good-faith exemptions
or private rights of action or other major amendments. It needs
only the support of this Committee and of the Senate. Thank
you.
[The prepared statement of Mr. McClure follows:]
Prepared Statement of David P. McClure, President/CEO, U.S. Internet
Industry Association
Chairman Burns, and Members of the Communications Subcommittee,
It is my great honor to be invited to testify before you on the
subject of Unsolicited Commercial Electronic Mail, and to express the
support of our members for S. 630, the ``CAN-spam Act.'' I am
particularly pleased to note that this legislation is the product of
two of the most respected technology legislators in the United States
today, Senator Conrad Burns and Senator Ron Wyden. Our work with these
distinguished Members of the Senate on other issues has always resulted
in the creation of well crafted and effective Internet legislation.
My name is David McClure, and I am President of the U.S. Internet
Industry Association, the oldest and largest trade association
representing stakeholders in the Internet industry. USIIA was founded
by leading companies in the online services industry to represent the
interests of individuals and companies that do business on the
Internet.
Our diversified membership includes Internet service providers from
global and national ISPs to small providers serving remote areas
nationwide; Internet backbone companies, telephone companies; hardware
and software vendors involved in the technologies of the Internet;
electronic commerce sites, and service providers to those sites. Our
charter is to promote the growth of electronic commerce, content and
connectivity through sound public policy and business support.
The issue of SPAM
For the past 3 years, much of our effort in public policy has
focused on the issue of unsolicited commercial electronic mail. In a
white paper authored by Jim Butler and Andrew Flake, we outlined the
problems encountered in efforts to stop Spam with a legislative
solution, and the scope of legislation that we believe will help bring
relief.
I do not need to tell you how serious the problem of Spam is today.
According to a report by the Congressional Management Foundation, the
Congress itself suffered from more than 80 million pieces of electronic
mail last year, the majority of those being unsolicited bulk mailings
that interfered with the operations of Congressional offices and caused
real damage to the communications capabilities of this body.
A Gartner survey released last week found that on average an
employee spends 49 minutes of each work day simply managing e-mail.
That is 10 percent of the workday for every employee in every office in
America.
In spite of this, and in spite of our personal experiences, and the
outcry from consumers and their advocates here today, efforts to
legislation against unsolicited commercial e-mail suffer from two
problems.
1. There is nothing illegal about sending UCE, and it may in fact
be largely protected by the First Amendment; and
2. We don't know exactly what the term ``unsolicited commercial e-
mail'' means. Certainly, we think we know what ``e-mail'' is--though
advancing technology may render even our belief obsolete. I can assure
you that we are unable to determine exactly what ``commercial'' should
mean in this context, or ``unsolicited,'' either.
Does it mean that girl scouts who send notices to their neighbors
at cookie time should face jail time? Should the American Red Cross be
punished for soliciting emergency donations of O-positive blood? We in
this room would all agree that these are not the intent of the law. We,
after all, only wish to stop the ``bad spam.''
But I can assure this Committee that even in the absence of such
laws, anti-spam efforts are abused every day, causing irreparable
damage to legitimate businesses. These include trade associations whose
newsletters to their own members are routinely blocked by Spam filters.
They include one of our member companies that gives more than one
million consumers advance warning of viruses and security threats--but
find themselves open to liability suits because those warnings are
blocked in the name of preventing Spam.
Self-appointed spam blacklisters do not even wait until Spam is
sent--they will blacklist your domain, and all of its customers, if
they believe that at some future point your service might possibly be
used to send Spam. It is vigilante law at its worst.
Solutions
What then, can this Committee do?
Must we abandon all efforts to stop unsolicited commercial e-mail
in order to protect the First Amendment? Or must we accept the
inefficiency and abuses inherent in efforts to stop any message that
any person doesn't wish to read? In short, do we see efforts at a
legislative solution fail, as they have for the past 3 years, because
we cannot agree on a solution?
No.
In our white paper of 3 years ago, our association outlined the
steps that would provide legislative relief without stumbling over the
legitimate rights of communicators or corporations. There are four
steps that I would re-state today:
Let the marketplace do its job. The greatest problem with
UCE from an infrastructure standpoint is that it damages the
network through its sheer bulk and poor timing. These are both,
though, economic issues. Marketers who want to send their
messages through an ISP's servers should pay for the privilege.
This is a contractual issue that the market is quite capable of
managing. And frankly, once e-mail is no longer free and easy
to send, its volume will decrease substantially.
Crack down on fraud. It is estimated that over 90 percent of
SPAM today is fraudulent. There is no excuse for this. We
should have laws that force mailers to identify themselves,
using real e-mail addresses, real header information and real
contact information whenever they send a solicitation. Shine
the daylight on every commercial message, and woe be to the
wicked. Punish the lawbreakers without mercy.
Support the acceptable-use policies of ISPs. Some ISPs will
aggressively filter commercial messages as a service to their
subscribers, and those subscribers who desire this service will
flock to those ISPs. Others may choose not to block the
information, and subscribers will receive what they wish. That
is how an open, competitive market works, and the desires of
all consumers can be met in this manner.
Help marketers understand the word, ``No.'' One of the
problems with direct marketing is that in spite of the very
best and well-intentioned efforts of legitimate marketers,
there is always someone who can't understand the word. Opt-out
should be simple, pervasive and permanent.
Conclusion
Mr. Chairman, and Members of the Subcommittee, I could ask you to
craft the kind of legislation that would cover these four points. But
that work is already done. In S. 630, we have a very good piece of
legislation that will reduce unwanted commercial e-mail and resolve the
outstanding legal issues, while still supporting consumer choice and
the rights of service providers to run their businesses.
We are here today to ask that you give your support to S. 630 as it
is today. It does not require re-writing--the industry has had ample
time to give input to its authors. It does not require ``good faith''
exemptions, or private rights of action, or any other major amendment.
It needs only your support.
Mr. Chairman, on behalf of USIIA and its members, and of the
Internet community at large, thank you for the opportunity to express
our views on this issue. I would be honored to answer any questions you
might have at this time.
______
The Effective Control of Unsolicited Commercial E-mail
An Internet Policy White Paper
By James W. Butler, III and Andrew Flake
Introduction
As commonly used, the pejorative ``spam'' refers to bulk electronic
mailings of a commercial character, and the practice of ``spamming'' is
positioned squarely at the center of contemporary debate over the
Internet's commercial development, Internet etiquette and individual
privacy.
For Internet service providers (``ISPs'') especially, the bandwidth
commandeered by spamming and the resultant slowdowns in service
represent an infrastructure expense of increasing dimensions. At the
same time, the law of the Internet remains in some disarray, although
courts and even some states have taken initial stabs at regulating
spam.
This White Paper presents a discussion of the problems inherent in
direct electronic marketing from the perspective of both consumers and
of the online community and concludes with modest recommendations for
salient legislative initiatives.
Historical Overview
Spam is only one of a host of new legal issues that have arisen
around electronic mail, and the term itself has had several
incarnations in the online and Internet communities.
During the Internet's pre-commercial days, amid the perception of
the need to minimize utilization of servers and message traffic to
conserve acaUCEic and research resources, ``spamming'' referred to the
act of posting an individual message to numerous UseNet Newsgroups. The
exact path by which it did so is not known, but at some point the
earlier, rather clean definition of ``spam'' evolved to encompass
commercial or marketing messages as well.
One of the more critical events in the term's migration came with
the infamous postings of an attorney who initiated a massive e-mailing
in the hopes of soliciting green-card business among immigrants. His
multi-posting efforts gained him the permanent enmity of Internet and
UseNet users, as did his unwillingness to cease the effort once
informed of his breach of Internet manners, or ``Netiquette.'' That
violation occurred simultaneously with explosive growth of Internet use
among consumers: as they poured onto the Internet in 1994-1996, the
sheer number of new users overwhelmed the online community and made the
maintenance of the tightly-integrated Internet culture virtually
impossible.
Despite very strong efforts by experienced Internet users to
maintain their traditions and definitions, the communication became
garbled, and two Internet conventions (one barring messages with
commercial content, the other barring multi-posting of messages) were
generally commingled into the general heading ``spam.''
The Terminology of Electronic Messaging
Whatever its traditional definitions and usage, the term ``spam''
may today be taken or mistakenly referred to as any one of the
following sorts of messages: a message with commercial or marketing
content; one that the recipient does not wish to receive, or which is
unsolicited; one that the recipient has not specifically authorized in
advance of its transmission; or, a message posted multiple times to a
single or multiple newsgroups.
Accepting the Internet's transition into a commercial entity in
which some forms of marketing and sales messages will be accepted and
essential, imprecise definitions are counterproductive and serve to
limit the development of electronic commerce. Although it is not the
intent of this White Paper to alter Internet culture or common usage of
terminology, the confusion and imprecision associated with the word
``spam,'' suggest that a more precise labeling would be beneficial.
This White Paper will use the term Unsolicited Commercial
Electronic mail (``UCE'') to describe the process of directing a
commercial message via electronic mail to a selected group of
recipients.
Scope of the Problem
Measured by volume of use, electronic mail is fast approaching more
traditional means of communication, including letter-writing and
telephone communications. Though abuse of the UseNet messaging system
on the Internet is both rampant and detrimental, the current
controversy over electronic communication more frequently centers on
unsolicited commercial e-mail. UCE is a problem for the Internet, for
five reasons:
It is inefficient. Presently, with no controls or costs
attached to UCE, it is as cost-effective to drop one million
pieces of UCE onto an ISP as it is to drop one--though the
costs to the ISP are substantial. No production cost is
involved in the creation of e-mail intended for UCE
distribution--no brochures, artwork, printing or other
mechanical costs. In effect, unchecked UCE is a ``free ride''
for marketers and provides them with a disincentive to
research, focus or target the list of recipients to insure
interest in the products or services presented.
It disrupts service. A major mechanical drawback with UCE is
that it arrives on the Internet without notice. It slows
service for other users, often during peak use hours. In some
cases, it has caused wholesale failures of Internet networks.
This disruption is frequently aggravated by the fraudulent use
of incorrect or non-existent return addresses, which causes the
outraged responses of recipients to bounce across the network
multiple times as the system attempts to deliver messages that
cannot be delivered.
It is frequently fraudulent. An Internet culture protective
of user anonymity has the unfortunate side effect of creating
an environment in which unscrupulous purveyors of UCE can
operate. Messages are sent directly to an electronic mailbox,
and marketers need not provide information, e.g., business
name, physical address, telephone and fax numbers, that would
enable consumers to assess the validity of companies. Without
greater certainty about company legitimacy, Internet consumers
quite rationally become wary of even legitimate marketers.
These concerns have contributed to decisions by ISPs to seek
judicial protection.
There is no effective ``opt-out'' procedure. In the offline
world, marketers operate a system that enables consumers to
remove themselves from direct marketing lists. While the system
is not completely effective, it does exist. In the online
world, no such system exists, although numerous efforts to
create one have been undertaken.
There is no compensation for service. In the offline world,
direct marketing subsidizes the U.S. Postal Service and/or
telephone companies, effectively paying for itself. In the
online world, UCE currently benefits only the originator of the
message and does not pay for the burdens it places on the
system. UCE provides very little value, e.g., convenient
shopping, entertainment value, or consumer information, and
Internet service providers bear the brunt of the resource
outlay for the infrastructure that enables UCE. Realistically,
a mechanism that shares the economic burdens of UCE will more
closely mirror the offline world, and will produce stronger
efficiencies in the way UCE is handled on the networks. A ``pay
as you go'' system would compensate the ISP's who provide the
on-and-off ramps for the UCE traffic.
Combating the Growth of UCE
In recent years, significant progress has been made toward
understanding and dealing with the problems associated with UCE.
Sanford Wallace, the self-proclaimed ``king'' of the UCE business,
stepped down and joined the ranks of those opposing unchecked direct
electronic marketing. Major Internet providers such as Earthlink and
AOL successfully secured court orders against perpetrators of unwanted
UCE. Nonetheless, the current legal situation remains far from clear,
and debate rages on among those impacted by and involved with Internet
service provision.
On one side are individual consumers who do not wish to have their
time wasted by having to open and read the first few lines of countless
messages in which they have no interest. ISP customers who fall into
this group are supported by consumer advocacy groups, as well as by
those whose loyalty to the old Internet culture of non-commercialism
eschews marketing of any sort. On the other side are the marketers, who
believe that they have a clear right to communicate with current and
potential customers, regardless of legal trends to the contrary. These
marketers are supported by customers who wish to have product and
service information, as well as by the Direct Marketing Association and
its legion progeny, who fought for similar rights in the use of the
mails and in direct telephone solicitation.
Individual ISPs straddle the line and await some clear resolution
while attempting to cope with UCE's associated costs--these are the
online and Internet services that suffer both the wear on their systems
from dumping of UCE messages, along with the wrath of the subscribers
incensed over wasted time and service slow-downs. These service
providers seek additional sources of revenue to keep costs competitive
as their business grows, but fear the network damage and other
consequences of opening their systems to unwanted UCE.
Unsuccessful Initiatives
While the two camps (and the companies and individuals stuck in the
middle) have generated significant public dialogue, attempts to deal
with the very real and escalating problems of UCE have been only
partially successful, and generally only in the event that the
originator of the UCE can be identified. Initiatives that have proven
unsuccessful include:
Attempts to claim ownership of the electronic mailbox.
Unlike the offline world, where the U.S. Postal Service rather
than the consumer owns the mail box, the online industry
assumes that each individual owns his or her e-mail box.
Although such ownership has not been legally established, the
constitutionality of so-called ``receiver restrictions,'' in
which consumers are given the right to refuse certain mailings,
has been upheld.
``Right to privacy'' claims. There is a perceived ``right''
of consumers to not have to view anything they elect not to
view, although no case law substantiates this position. By the
same token, however, constitutional free speech does not mean
that an individual is obligated to view particular subject
matter.
Extension of laws prohibiting marketing via facsimile. See,
e.g., ``Netizens Protection Act of 1997,'' H.R. 1748, 105th
Cong., 1st Sess. (1997). Although the laws that were used to
prohibit direct marketing via fax automatically are sometimes
believed to extend to electronic mail, this concept overlooks
some very fundamental differences in the two systems. For one,
fax machines use expensive resources, where electronic mail
normally does not, and efforts to build a case based on the
time wasted in reading unwanted e-mail have largely been
countered by advances in message preview technology and by the
move to flat-rate rather than per-minute pricing for Internet
and online services.
An ``opt-in'' solution, no matter how desirable, may be
impractical. Much of the discussion of consumer rights to date
has focused on whether UCE should be sent only to those who
have specifically requested communications--an ``opt-in only''
solution. This approach, however, would severely limit
communication with persons who have not given advance written
consent.
An ``opt-out'' solution needs strong enforcement mechanisms.
The ability of consumers to quickly and easily ``opt-out'' of
receiving UCE, will only work if there is a sufficient
incentive to keep the opt-out list well-maintained, well-
promoted and easily accessible by consumers.
Efforts to delineate UCE based on the content of the
messages has proven impractical. For example, even the most
liberal definitions of ``commercial'' e-mail would prevent
announcement to parents of what an elementary school is serving
for lunch, since this would clearly be an advertisement of a
product for sale.
Use of mandatory ``header'' information is counter-
productive. Many suggestions have been made regarding an
identifying mark or phrase that could be placed in the subject
line or at the head of any commercial message, thus allowing e-
mail filters to more easily identify and eliminate UCE. While
this idea is appealing, it suffers from the definitional
problems because filtering systems, at their current level of
sophistication, cannot differentiate between UCE and otherwise
valid customer mailings. Attempting to have any body,
organization or regulation define exceptions to the rule would
be unwieldy, and use of extensive identifying information in
the first lines of the message would render useless the preview
screen technology used by many consumers to rapidly screen
messages and their content.
Use of a ``pre-existing relationship'' test may not be
sufficient. It has been assumed by many in the online community
that such a test may be implemented in the near future, under
which electronic mailings would be permitted to those customers
and other groups with whom the mailer has a ``pre-existing
relationship.'' This assumption, however, has led virtually
every business that has a web site or advertises via electronic
mail to scramble to collect personal information about users as
a hedge to show such a relationship. The rampant collection of
data in order to prove the relationship has created another
crisis in the area of privacy, as was noted by the Federal
Trade Commission in its efforts to enforce Internet privacy
guidelines.
Developing A Framework
To merely legislate or regulate UCE out of existence is neither
Constitutional nor necessary. Though not yet tested, even unsolicited
commercial messages would be subject to constitutional protections if
Congress acted to prohibit their dissemination.
Such restrictions are better left to Internet service providers,
which as private actors may ban distribution of UCE messages on their
networks. Still, the industry's efforts with respect to UCE have so far
proved only moderately successful. From these efforts, however, has
emerged a sense of a viable framework to address its inherent problems.
Fraud Prevention Legislation. The extension of regulations
and legislation related to fraud to UCE. The trend at the state
level is clearly toward regulating the practice of UCE. State
legislation, however, must be carefully drafted to avoid
constitutional challenge, as the experience of Georgia's UCE
fraud statute indicates.
Measured Common Law Development. Recognition by the courts
that UCE as presently practiced creates a strong adverse impact
on the Internet. Specifically, the channeling of hundreds of
thousands of pieces of electronic mail through an Internet
system at a single time significantly degrades the performance
of the network and interferes with other forms of Internet
access and communications.
Continued Industry Initiatives. The growth of filtering
technology for electronic mail. While still crude and
relatively ineffective for the larger body of electronic
messages, filtering technology has assisted ISPs in taking the
first steps toward empowering consumers to automatically reject
unwanted solicitations.
Any proposed framework will at best be preliminary, with additional
time and consideration required for its full effectiveness, but
reasoning from the current experience of the online industry, it is
certain that the following will be factors in any consistent
legislative approach to UCE:
The first step is to eliminate fraudulent mailings. The most
critical elements of a framework for control of UCE will be
unsuccessful if unscrupulous operators are able to flaunt the
rules with impunity. At a minimum, electronic mailers should be
required to divulge their real identities and return addresses,
as well as compliance with other consumer protections laws as
appropriate. Although a number of ISPs have imposed guidelines
prohibiting the use of their services for the sending of UCE
messages, such efforts are far from universal, and the
individual policies of an ISP provide no protection against
external sources of UCE.
The solution must include relief for stress on the networks.
Consumer irritation aside, the damage done to the Internet by
UCE is very real, and its elimination of this damage must be a
central consideration in proposed legislation. At the minimum,
a requirement for contractual notification of the Internet
service or provider prior to transmission of UCE should be put
in place; the market would be best served, however, by an
industry-wide financial arrangement, similar to the postage
system, to compensate all carriers of the message traffic. A
compensation system would have the additional benefit of
providing a barrier to entry for unscrupulous spammers.
The right of the states to impose more stringent consumer
protections should be preserved. State and local laws have
provided some of the strongest protections against abusive UCE
to date, in part because they have more extensive protections
available against business interference and detrimental
business practices. The framework for the future should include
some assurance that state and local considerations on behalf of
Internet services and consumers not be preempted, to the extent
that they are more solicitous of consumer interests than any
federal statutory cause of action. Federal initiatives should
provide a base level of protection for consumers and ISPs, to
circumvent the possibility of inconsistent regulation of an
entity, the Internet, that is not bounded by geography.
Conclusion
The continuing popularity of electronic mail (``e-mail'') as a
medium of personal and business communication has brought in its wake a
host of novel legal issues, among them the extent to which the practice
of unsolicited commercial e-mail (``UCE'') may be limited.
A compelling need to protect Internet users from unwanted,
unnecessary and fraudulent commercial message traffic, as well to
protect the infrastructure of the Internet from the problems created by
massive postings of messages, either commercial or otherwise, has
already seen some courts and state legislatures move to prohibit the
practice in its various forms.
This White Paper has set forth in summary fashion the historical
and legal underpinnings of the debate over UCE, and its conclusion is
that federal legislation should be enacted that would (1) provide a
minimum of protection for consumers against fraudulent electronic
mailings by marketers; and (2) promote a more reasonable allocation of
the costs of legitimate UCE toward the direct marketers that are its
source.
Appendix A: USIIA Policies
The U.S. Internet Industry Association opposes any action, program,
system or endeavor that corrupts the legitimate use or integrity of the
channels of electronic communication. This policy is explicitly stated
in paragraph 7 the USIIA Code of Standards, which reads as follows:
``Members shall not knowingly create, acquire, distribute or allow
intentional distribution of materials that violate the legitimate use
or integrity of the channels of electronic communication, online
services, computer systems or their contents.''
Consistent with this policy, USIIA does not support the practices
of Multiposting of Messages or Off-Topic Posting of Messages. It is the
belief of the Association that persons who deliberately engage in these
practices should have their access to the UseNet and other online
lists, discussion groups or message bases terminated. This policy is
not intended to affect the legitimate act of Cross-Posting of Messages.
Similarly, USIIA does not support or condone the communication of
information that is deliberately misleading or fraudulent. This is
stated in the USIIA Code:
``Members shall not knowingly disseminate false or misleading
information and shall act promptly to correct erroneous communications
for which he or she is responsible, or which originated from or resides
on his or her system.'' USIIA Code of Professional Standards, #8.
This section of the Code is interpreted to include messages in
which an attempt is made to disguise the commercial nature of the
message, those which are fraudulent, those which misrepresent the
origination of the sender, and those which are violations of the law at
the point of origination. Nothing within the Code, the Bylaws of the
Association, its Mission Statement or the will of its members
specifically prohibits or discourages the legitimate commercial uses of
electronic mail or messaging.
Senator Burns. Thank you, Mr. McClure.
Senator Wyden. Thank you.
Mr. Chairman, I think it is striking now. You and I have
put an enormous amount of time into this issue now over the
last Congress and this Congress and we thought we were going to
get there at the end of the last session, and suffice it to
say, I have got a number of questions I want to ask, but my
biggest concern here is that we need to act, because people are
tired of this. And to just go round and round the mulberry bush
with everybody having their own difference just doesn't seem to
me to be very constructive.
I mean, I would say to Mr. Pogust you know since my days as
director of the Gray Panthers, my background has been consumer
law and consumer rights.
I find it pretty hard to see a private right of action here
for a handful of unsolicited e-mails, but to tell you the
truth, I could see how you would differ. In other words,
something reasonable people can differ on. The problem is that
if we just go round and round on all of these, we are never
going to get anything done in this Congress so what I want to
do is ask just a couple of questions in hopes that we can get a
bill here and actually signed into law.
Do any of you think that the Burns-Wyden bill is not better
than the status quo? Mr. Moore? Do you think that Burns-Wyden
is better than the status quo?
Mr. Moore. Absolutely. No question about it.
Senator Wyden. Mr. Buckley?
Mr. Buckley. Yes.
Senator Wyden. Mr. Pogust?
Mr. Pogust. Yes, but I believe it needs a little work.
Senator Wyden. I am going to still just take the yes.
Mr. Catlett. I think there is a risk it will worsen the
problem rather than improve it, so I am sorry to say.
Mr. Cerasale. Senator, yes.
Senator Wyden. OK., so we got almost everybody saying that
Burns-Wyden, even though we all have differences----
Senator Burns. One-and-one. That is better than all in one.
Senator Wyden. All right. That is encouraging. Anybody
think that you ought to be able to falsify headers? I can't
believe that anybody is in favor of that? I will take that as a
United Nations opinion.
Everybody here, even though there are differences on the
role of opt-out/opt-in thinks that opt-out is a useful pro-
consumers principle? Mr. Catlett, you can take the floor. We
recognize you are for opt-in and I understand that, but opt-out
is better than nothing for the consumer, isn't it?
Mr. Catlett. It is better than nothing in an individual
case. However, if you apply broadly an opt-out policy,
particularly if you preempt state law on this, you will
actually increase the number of unwanted solicitations, most
likely, so applied broadly, an opt-out policy with preemption
may well make the problem worse.
Senator Wyden. I am not going to belabor it. I think that
is pretty far-fetched. To me, any way you slice it, when people
are opting out, they are going to get fewer of those
communications, but again, reasonable people can differ and let
me just kind of keep going on this.
For the DMA folks and Mr. McClure, any sense on what the
Burns-Wyden bill would cost to comply with? I mean, we think
that these are pretty modest costs, and they would be
consistent with free enterprise, you know, principles. Do you
all disagree with that?
Mr. Cerasale. Not at all. As a matter of fact, our members,
if someone says do not send me any more solicitations, they
have to follow it already, so that I would say that this fits
pretty tight within what our members already have to do.
Mr. McClure. We are in agreement, sir. We don't see
significant costs. We do, if I may quickly, address the issue
that has been raised here repeatedly, and that is that somehow
ISPs would not aggressively go after spammers because it costs
too much money for them to sue. Certainly if it is going to
cost them hundreds of thousands of dollars to sue, it would not
cost much less for individual consumers to do so.
We believe that ISPs have a very strong record of suing
spammers when they have the law on their side. And therefore,
we believe that this is a good bill for ISPs and it needs to be
passed. We have gone 3 years, sir. It is time to get a bill
passed.
Senator Wyden. You are singing from my hymnal. Question for
the financial services folks. I think you know, I think you all
have raised legitimate concerns and to some extent they are not
unlike what happened with the electronic signatures bill at the
end because this is all new.
I mean, if you sat around the Senate Commerce Committee 20
years ago, you never debated this kind of stuff. You were
talking about an economy where people in Montana and Oregon
were doing the physical movement of goods and you got up in
Missoula at 5 o'clock in the morning you ate about 20,000
calories at 5 o'clock in the morning and you did physical labor
so this is all new stuff, so we are trying to be sensitive to
your concerns.
You have indicated you have got some concerns about the
enforcement issue, and we are going to try to address those,
the role of the Federal Trade Commission and the states and I
think we can, we can do that and as you know, some of those
issues came up in the electronic signatures bill as well, the
role of the Federal Government and the states, but the one that
I would like to see if we can make progress on is on the
definitions. I want to find out if we are talking about some
technical stuff or are we talking about things where there is
really a philosophical question.
You suggest, for example, that being clear may require, for
example, a universal signal that the e-mail is an
advertisement, a kind of universal signal. The reason we have
taken the approach that we have, Senator Burns and I, Chairman
Burns and I, is we are trying to give business a lot of
flexibility because we thought that is what business folks were
interested in is trying not to have this one-size-fits-all and
everybody in Washington, DC running around saying we have got
all of the wisdom.
Mr. Buckley. I understand your frustration, Senator, as you
say----
Senator Wyden. We are trying to be responsive.
Mr. Buckley. You say ``let's try to give people
flexibility'' and that is something people often want, but in
compliance statutes we find clear definition of responsibility
is important. I practice law and defend lawsuits and try to
advise clients on how to remain compliant. It is a good idea to
try to give people a model. It doesn't necessarily eliminate
flexibility--you could both retain flexibility and give a model
saying ``do it this way and you can be sure to have complied.''
You still have flexibility to comply otherwise, but in an area
like this, using standards like ``clear and conspicuous,''
without further definition of what you are talking about.
This notice is something that is going to be fairly
universal and I hope fairly simple, but you know when you get
into what is clear and conspicuous, what's the size of type,
where does it have to be located, maybe we ought to have some
discussion about that. You know, I don't want to pin people in
other industries down where they feel that they need
flexibility, but it is awfully helpful to know exactly what
Congress has in mind. There is a class action bar lurking out
there, and if we don't get some of the changes we have asked
with respect to enforcement, we may have challenges to whether
something is ``clear and conspicuous'' or not. Even the FTC may
conclude we don't agree with your understanding of what clear
and conspicuous is.
So we think tightening down on the meaning of ``clear and
conspicious'' would be helpful. I know precision is not what
people are always asking for, but that seems best in this case
in our judgment.
Senator Wyden. Well, we will work with you and I know
Senator Burns has some questions, but I think we ought to get
this, get this bill to the White House for signing, for a
signing ceremony. I think I have met with almost all of you
individually, the financial services folks here recently,
Senator Burns has done exactly the same thing, and you know,
look, I think the American people say getting spam in their in
box is like getting that unidentified stuff in your lunch box,
and you didn't order it. You don't know where it comes from,
and you are really ticked off.
So work with us here to try to resolve these remaining
issues because even at this table there is a whole lot more
common ground here than there are reasons to go off in your
respective corners and come out swinging, which was why I asked
that question about the status quo, and we will do our best to
be responsive to your concerns and Senator Burns, like a pen
from President Bush when this bill gets signed into law, and I
would, too, and I thank you, Mr. Chairman.
Senator Burns. All I need is one more pen. You bet. All I
have is one more question, and I am going to throw it out on
the table and let everybody take a shot at it. I referenced the
article in the Wall Street Journal on Monday. And it had to do
with mass harvesting.
Spammers can't survive without a plentiful supply of e-mail
addresses, and as I understand it, businesses have sprung up to
fulfill that need. They have technology that intrudes on
popular websites and gathers thousands and thousands of e-mail
addresses to spammers. And they sell and rent those addresses
to spammers. The result is that someone who has posted a
comment in a chat room or made a winning bid on an online
auction, and I am an auctioneer, and I want to sell spurs so
they don't send me much, they get on a spam list and they are
flooded, absolutely flooded with unwanted messages. And I will
tell you, I did sell a pair of spurs on eBay and boy, as soon
as that happened, I'll tell you, I just threw my old computer
away. I changed my name and everything.
That individual's privacy has been invaded and they don't
know how it happened. It sours them on the entire business of
e-commerce. Do we need to do something about this business of
harvesting and do we, and is there a way to amend or how would
you recommend that we deal with this situation of harvesting?
Mr. Catlett?
Mr. Catlett. Thank you, sir. Unfortunately, to ban
harvesting would not be effective for the following reason.
There is a technology employed now called dictionary spamming
which is based on the age-old sales method of guessing so a
spammer, for example, has an e-mail address [email protected] so
they try sending a spam to [email protected] and the mail server
tells them no such address or yes, that is a live one, then
they go into John45 and so on and so forth. They also try
[email protected] and because people tend to use e-mail
addresses which are easy to remember for their friends, they
hit on a large number of deliverable addresses. So as
deplorable as the practice of scavenging e-mail addresses is,
to ban it, even if completely effective, would not solve the
core problem.
Senator Burns. Any other comments? How do we, how do we
deal with these folks who break into commercial organizations
and take their list?
Mr. Catlett. Well, the Computer Fraud and Abuse Act would
already make that illegal, I believe, sir. I am not a lawyer,
but----
Senator Burns. Is that correct? Well, that is about all the
questions and Senator Wyden and the way you covered this thing,
we will, we want to work with you and to move this thing out
and find a way that we can find some similar ground on this
thing.
Senator Allen had some questions, and I am going to allow
him to submit those in writing and you can respond either to
the Senator or to the Committee. We would appreciate that. And
then I have a couple more, but it is getting close to 4:30 and
I never work past 4 o'clock. And we have already gone overtime.
But I want to thank you for your testimony today. We
invited AOL and Yahoo today and they declined to come and
before we can, before we can solve some of these problems, we
are going to, we have got to have a good, strong representation
of the giants of the industry, and I am disappointed in that
but nonetheless, we'll be meeting with those folks and continue
our communications with you as we work it through the Senate.
But I am like Senator Wyden. It is time to move this thing and
we plan to do just that as soon as we can. Thank you for coming
today. We appreciate it. These proceedings are closed.
[Whereupon, at 4:35 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Today's hearing examines a bothersome consumer issue--that
of unsolicited commercial e-mail, also referred to as junk e-
mail or spam. With the growth of commerce over the Internet,
consumers are being bombarded with junk e-mail advertising
various products and services, including get-rich-quick
schemes, phone sex lines, and pornographic websites. In light
of the bothersome and at times costly nature of junk e-mail, I
believe it is appropriate for Congress to address this issue.
Since junk e-mail imposes real costs on recipients, it is
important that we act to resolve this issue and not simply
balance the concerns of competing business interests. For
example, an ISP or a business has to expend money and resources
when its network crashes because it cannot handle the volume of
junk e-mail. Consumers have to expend time and money to delete
junk e-mail from their accounts or inform the sender that they
do not want to receive future junk e-mails.
An opt-out approach in which the recipient has to respond
to every junk e-mail and ask the sender not to send any
additional junk e-mail is riddled with loopholes. This approach
is problematic because in the online world, spammers often do
not provide correct addresses and header information. An opt-
out system also requires electronic marketers to keep a well-
maintained list for all consumers who have opted-out, provide
clear information to consumers about what they need to do to
opt-out, and ensure that consumers know that they can opt-out
of receiving junk e-mail. An opt-out approach also presents
difficult questions such as if a consumer opts-out of receiving
information from the Gap does that mean that Old Navy, a store
owned by the same parent company, can send the consumer junk
mail? Also, where a consumer has multiple e-mail addresses,
must the consumer opt-out for each e-mail address?
I also believe it is important that all consumers have some
legal recourse when they are harmed. This means that when a
business or consumer suffers damages from having their computer
and Internet systems go down because of the volume of junk e-
mail, they are able to recover damages. The threat of a lawsuit
will help to ensure that senders of junk e-mail take the
requisite care when they send junk e-mail.
This is an important issue and Congress should take the
time to get it right. I welcome the witnesses and look forward
to hearing their testimony.