Spam Arrest's Sender Agreement Fails Because Email Marketer's Employees Lacked Authority

By Eric Goldman
Eric Goldman

People hate receiving spam, but most people stopped obsessing about spam a decade ago or more. In the interim, anti-spam filters have improved dramatically. Still, some anti-spammers hate spam so passionately — or, perhaps, hope to put a little coin in their pockets — that we still see a steady stream of lawsuits against email marketers. For the most part, those lawsuits don't win; in the past half-decade, repeat anti-spam plaintiffs have rarely won in court. A recent ruling in a case brought by Spam Arrest demonstrates just how hard it's gotten to win anti-spam lawsuits — and why we're not likely to see many successful anti-spam lawsuits in the future.

The Ruling

Spam Arrest offers a subscription anti-spam service that blocks emails from senders until they verify themselves. To verify senders, Spam Arrest emails them a link to a verification page, where the sender can click on a "verify" button.

The verification page contained a two-paragraph "Sender Agreement" below the verify button. The Sender Agreement said that clicking the verify button indicated assent to the Sender Agreement, but before 2011, the rest of Spam Arrest's verification process didn't highlight the Sender Agreement. After 2011, Spam Arrest made it clearer that verification also meant assent to the Sender Agreement. Spam Arrest showed that the email marketing defendant, Sentient Jet, completed the verification process about 600 times, causing email to reach over 500 Spam Arrest customers.

The Sender Agreement made senders promise that they were not sending "unsolicited commercial e-mail" and specified that senders had to pay $2,000 for each violation of the agreement (a "liquidated damages" clause). Imposing liquidated damages for spam has become fairly common in online contracts, and it's succeeded in at least one case.

Unfortunately for Spam Arrest, its breach of contract claim against Sentient Jet fell apart on multiple grounds:

Because the damages were so minimal and attenuated, the court rejected Spam Arrest's liquidated damages clause as an unenforceable penalty. (Contracts law prohibits financial penalties in contracts). To prop up its liquidated damages calculations, Spam Arrest retained Dr. Steven Shavell, a Harvard Law professor and a major figure in the field of Law and Economics, but this didn't go well. The court discredited Dr. Shavell's testimony as "wholly divorced from the analysis of liquidated damages clauses that Washington law requires," and Spam Arrest apparently conceded that Dr. Shavell's testimony was "irrelevant" to the applicable legal standard. Worse, the court says that Dr. Shavell's testimony helped Sentient Jet's case by confirming "that the $2,000 is justifiable only as a deterrent, not as a reasonable forecast of damages." (Dr. Shavell declined comment on this ruling).

If Spam Arrest couldn't show any damages from the lawsuit, why did it sue? I got the following statement from Derek Newman, one of Spam Arrest's lawyers:

I've been a Spam Arrest customer since 2001. Spam Arrest is the only spam-elimination technology that works. It's successful at least 99% of the time and would always work if not for companies like Sentient Jet. Sentient's director of marketing entered into an agreement with Spam Arrest promising not to send spam to Spam Arrest's customers. But to promote its $120,000 private-jet cards, Sentient's employees ignored the agreement and sent thousands of emails to Spam Arrest's customers whose names Sentient purchased from a third-party email-list broker. We believe the court erred in finding that Sentient Jet should not be responsible for its employees' conduct. Spam Arrest is evaluating an appeal to protect its customers from unwanted spam in light of the court's decision.

I'll note another plausible hypothesis for the lawsuit: it was just a pure cash play, i.e., 600 allegedly bogus verifications x $2,000 liquidated damages = $1.2 million of potential damages.

Implications

Fortunately, most courts who have addressed this issue have found the clicking person had the requisite authority (see, e.g., Crawford v. Consumer Depot, Abramson v. America Online and Motise v. America Online). Further, this ruling didn't hold that employees categorically lacked authority to bind their employers to the Sender Agreement; the key was Spam Arrest's $2,000 liquidated damages clause, which was such a large dollar amount that the court paused to ask if rank-and-file employees had the requisite authority. The ruling leaves open the possibility that a different approach to liquidated damages might have been more successful.

Case citation: Spam Arrest LLC v Replacements Ltd., 2013 WL 4675919 (W.D. Wash. Aug. 29, 2013)

By Eric Goldman, Professor, Santa Clara University School of Law. Visit the blog maintained by Eric Goldman here.

Related topics: Law, Spam

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