Venable Obtains Decisive Legal Victory for Email Advertisers and Marketers

7 min

Washington, DC (August 13, 2013) – Following a two-week jury trial conducted by Venable attorneys J. Douglas Baldridge, Ari N. Rothman and Lisa Jose Fales in Maryland federal court, United States District Judge Peter M. Messitte ruled that Beyond Systems, Inc. (or “BSI”), an alleged Internet service provider, is barred from pursuing claims for alleged violations of the California and Maryland anti-spam statutes because Beyond Systems lacks standing to sue as an Internet service provider, and because Beyond Systems consented to receive the emails over which it sued the defendants.  Thus, purported Internet service providers that exist primarily and substantially to file anti-spam lawsuits, and Internet service providers that consent to receive the emails over which they sue, cannot maintain claims under the California or Maryland anti-spam statute, thereby providing a complete defense to email marketers that are targeted by these types of plaintiffs.  

Baldridge, Rothman and Fales represented Connexus Corp. at trial.  “We are grateful that Judge Messitte reached conclusions that are compelled by controlling law, undisputed facts considered by the jury, and common sense.” said Ari N. Rothman.  “The court’s ruling will allow legitimate companies like Kraft and Connexus to continue advertising by email without the threat of opportunistic plaintiffs disrupting their businesses through the filing of filing frivolous lawsuits to game the system,” he added.

Standing under CAN-SPAM (Federal Law): Gordon v. Virtumondo

CAN-SPAM (15 U.S.C. §§ 7701 et seq.) is the federal law that regulates commercial email, and prohibits certain types of commercial email identified by the statute.  CAN-SPAM expressly allows an “Internet access service” to sue for violations of the statute.  15 U.S.C. § 7706(g).

The Ninth Circuit in Gordon v. Virtumondo held that the plaintiff lacked standing to sue under CAN-SPAM because the plaintiff did not “operate as a bona fide e-mail provider.”  575 F.3d 1040, 1052 (9th Cir. 2009). In Gordon, the plaintiff alleged it was an “Internet access service” provider adversely affected by spam, and sued under CAN-SPAM and the Washington Commercial Electronic Mail Act (“CEMA”), Wash. Rev. Code § 19.190.010 et seq.  While the defendant did not contest plaintiff’s standing to bring state law CEMA claims, the defendant did contest plaintiff’s standing to maintain its CAN-SPAM claims because the plaintiff undertook efforts to receive spam and sue over it.

In light of these and other facts, the Ninth Circuit held that plaintiff lacked standing to sue under CAN-SPAM because plaintiff was not a bona fide Internet access service provider.  Central to its holding, the Ninth Circuit found that plaintiff “has purposefully avoided taking even minimal efforts to avoid or blockspam through a variety of means for the purpose of facilitating litigation.”  Id. at 1052.  The Ninth Circuit did not decide whether plaintiff also lacked standing to maintain its state law CEMA claims.

Standing under Maryland and California State Law: Beyond Systems v. Kraft Foods

Maryland’s anti-spam statute is based on the Washington state anti-spam statute, CEMA, at issue in Gordon.  Like CEMA, the Maryland anti-spam statute allows an “interactive computer service” provider or recipient of fraudulent spam email to sue over such email.  Likewise, California’s anti-spam statute allows an “electronic mail service provider” or recipient of fraudulent spam email to sue over that email.  The Maryland and California statutes each allow a service provider to obtain $1,000 for each unlawful email.

In 2008, Beyond Systems sued Kraft Foods and Connexus Corp., and claimed that it was an “interactive computer service provider” and an “electronic mail service provider” that received alleged fraudulent emails.  Beyond Systems, Inc. is owned by Paul Wagner, the brother of Joe Wagner, owner of another anti-spam plaintiff, Hypertouch, Inc.

When it became clear that Beyond Systems was primarily and substantially engaged in filing lawsuits and provided services at most as a secondary purpose, the judge ordered a trial on the issue of whether Beyond Systems was a bona fide service provider under the California and Maryland statutes. 

After the first phase of the trial, the jury first found that Beyond Systems met the technical definitions of the statutes.  Then, during the second phase, defendants presented the jury with evidence showing that Beyond Systems did everything it could to trap spam; agreed to receive vast amounts of spam from plaintiff’s brother, Joe Wagner of Hypertouch; filed dozens of lawsuits across the country over alleged spam based on the spam that Beyond Systems trapped and alleged spam that Joe Wagner of Hypertouch sent to Beyond Systems; generated revenues from litigation that far exceeded alleged services provided to customers; and otherwise functioned to file lawsuits and not as a legitimate service provider.

When confronted with this evidence, the jury found that Beyond Systems was not a bona fide “electronic mail service provider” under California’s anti-spam statute or an “interactive computer service provider” under Maryland’s anti-spam statute.  Instead, Beyond Systems functioned to “primarily or substantially” file anti-spam lawsuits.

Following extensive post-trial briefing by the parties, Judge Messitte issued a 37-page memorandum opinion finding that Beyond Systems lacks standing.  Considering “the Plain Meaning Rule of statutory interpretation; the matter of how legislative intent should be discerned in the interpretation of statutes; the ancient maxim of tort law volenti non fit injuria; federal preemption law; concerns of public policy; and –no less – the common sense that ought to inform the analysis of any legal question,” Judge Messitte found that Beyond Systems must be a bona fide Internet service provider to have standing to sue under the statutes, and that Beyond Systems lacked standing because “there was unquestionably sufficient evidence from which the jury could infer that BSI is not bona fide.”  Among other things, “virtually all of BSI’s time is spent in litigation,” “BSI chose to structure its e-mail routing and servers for the purpose of accumulating and trapping suspected spam (including creating bogus e-mail addresses) and in order to maximize the number of lawsuits it could generate based on the offending communication,” and “BSI has made over three times as much money in suing on spam as it has on any sort of valid business operation.”  According to Judge Messitte, “[i]t was therefore hardly a stretch for the jury to have found that BSI is not a bona fide ICSP or EMSP.”

Judge Messitte ruled that Beyond Systems also lacked standing because BSI failed to show “injury-in-fact.”  Finding that “for both state and federal injury-in-fact,” Judge Messitte then found that Beyond Systems failed to show injury-in-fact because Beyond Systems affirmatively sought to collect as many emails as possible to sue over them, and that “a party may not deliberately act to cause injury to itself, then rely on that injury to satisfy standing requirements” under the state statutes. 

Plaintiff’s Claims Are Barred Because Plaintiff Consented to Receive the Emails

Judge Messitte also ruled that Beyond Systems cannot sue under the state statutes because Beyond Systems consented to receive the emails over which it sued.  According to Judge Messitte, “the statutes are in the nature of a tort,” and that it is “a fundamental principle of tort law that ‘[o]ne who effectively consents to conduct of another intended to invade his interests cannot recover in an action of tort for the conduct or for harm resulting from it.’”  Judge Messitte noted that “the undisputed facts here show that BSI consented to the alleged harm about which it complains,” and that “[t]he evidence from Phase II of the preliminary trial was overwhelming to the effect that, either through Hypertouch or independently, BSI actively sought to receive and trap Kraft’s Gevalia e-mails.”  Further, [w]ith respect to some 99.8% of the e-mails attributable to Connexus, which arrived to BSI via Hypertouch, the trial testimony was explicit that BSI (Paul Wagner) knowingly consented to accept what it believed was spam from Hypertouch (Joe Wagner)” and that “as to all the e-mails in this case, it need only be recalled that BSI created hundreds of fictitious e-mail addresses and essentially maintained no filtering devices, while engaging in a pattern and practice of suing multiple mailers of suspect commercial e-mail.”  Thus, “[t]he Court concludes that consent to harm precludes any claim for the harm and that BSI’s consent to (‘solicitation of’ says it better) harm precludes it from going forward with the present action.”

Only bona fide service providers – and not service providers that primarily or substantially sue over alleged illegal email – can sue under California and Maryland statutes.  Further, plaintiffs cannot pursue claims under either statute if they consented or undertook actions to receive the emails.  There are other noteworthy findings in Judge Messitte’s opinion, such as that the statutes are not “strict liability statutes.”


Note: An American Lawyer 100 law firm serving clients globally.  Headquartered in Washington, DC, with offices in California, Delaware, Maryland, New York and Virginia, Venable LLP lawyers and legislative advisors serve the needs of our domestic and global clients in all areas of corporate and business law, complex litigation, intellectual property, regulatory, and government affairs around the globe.