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Church of Scientology/Netcom Decision Explores New Frontiers in Developing Law of Cyberspace

THIS ARTICLE WAS ORIGINALLY PUBLISHED IN THE MARCH 30, 1998 ISSUE OF MASS HIGH TECH

Can anyone make money on the Web? Many people think that one answer to that pervasive question is to sell advertising. One of the most interesting things to watch in the development of the Web as a business channel is the effort to adapt traditional forms of advertising to this new medium. Not only is the business model for Web-based advertising in its formative stages, but also the legal and regulatory environment.

Junk Mail

A low-level annoyance in the pre-Web days, the magnitude of electronic “junk mail” has exploded in the past year, filling in-boxes, irking the operators of large online services and inspiring the posting of “blacklists” of offending e-mail advertisers. In the recent case of CompuServe, Inc. v. Cyber Promotions, Inc ., a federal court in Ohio ruled that an online marketer that transmitted hundreds of thousands of unsolicited e-mail advertising messages to CompuServe’s subscribers, defeating CompuServe’s filter programs, was liable to CompuServe for “trespass to personal property.” The court rejected Cyber Promotion’s claim of a Constitutional “free speech” right to send e-mail, ruling that the defendant’s conduct impaired the value of CompuServe’s network due to the large burden placed on the network from the enormous volume of e-mail and also due to the numerous complaints CompuServe received from its customers.

Similarly, in Parker v. C.N. Enterprises , an advertiser who used a false return address was sued by the actual addressee, whose electronic mailbox overflowed with returned copies of the junk e-mail advertisement. The advertiser was held liable for damages.

Proposed Legislation

Laws have been introduced in the U.S. Congress targeting the unsolicited transmission of bulk e-mail advertising messages. One proposal would extend the highly successful federal limitation on junk commercial faxes to cover e-mail transmissions. Another proposed federal law would require that online advertisements be clearly labeled as advertisements with the sender’s name, that an “opt out” feature be included with each advertisement, and that service providers be required to filter advertisements if requested by the customer.

Many states are considering restrictions on bulk e-mail advertising. Nevada recently became the first state to enact commercial e-mail regulation, requiring e-mail advertisements to identify the sender and include “opt-out” instructions.

Deceptive Advertising

Regulators are targeting Web site owners for false and deceptive advertising, consumer fraud and other illegal activity. In addition to the Securities and Exchange Commission and the Food and Drug Administration, the Federal Trade Commission has become active in bringing enforcement actions, going as far as requiring that a notice of its action be placed on the offending Web site, with a link to the FTC site. Consumer fraud statutes have been used successfully to deter deceptive online advertising. The New York consumer frauds bureau last year successfully brought a civil action against an advertiser who solicited magazine subscriptions through e-mail advertisements using false testimonials. It appears, however, that actual enforcement actions by government agencies have not kept pace with the exponential growth of online advertising.

Application of Existing Laws

No single agency or organization has issued specific and definitive guidelines with respect to what online advertisers need to do to comply with the law, and thus the legal exposure for both Web site and e-mail advertisers is uncertain. Application of many of the existing rules to the Internet is often impractical. For instance, some states require publishers of electronic (radio and TV) ads to keep a copy of their ads for four years after publication; however, it is unclear how this rule would be applied to Web site owners, many of whom change the format of their site on a weekly basis without preserving the content.

Jurisdictional Concerns

The international nature of the Web introduces new legal risks related to jurisdictional issues. Advertisements can be accessed in countries where the advertised products are not legal, such as alcohol in Saudi Arabia, or where the method of advertising is prohibited, such as comparative advertising in France. Particular problems arise in connection with trademark usage due to the fact that a trademark used on the Web is essentially in use everywhere in the world, but one company may own a trademark in one country and a different company may own the identical mark in another country. Advertising on the Web can also have costly ramifications for companies within the United States, with the recent trend of cases indicating that companies may become subject to being sued in states far from their home offices simply by virtue of the exposure they gain through their Web site. Some sites, such as Netscape’s, now include a statement that any visitor agrees to be bound by California laws and to use California courts in any dispute with Netscape arising from use of the site.

Web Site Linking

The new and rapidly changing technologies presented by the Web have created unprecedented challenges to intellectual property protection, and this has had some interesting tie-ins with advertising. The most recent source of controversy comes from the practice of “framing”, where partial linking is accomplished by using frames to incorporate one party’s content into another party’s Web site. In the federal case of Washington Post Co. v. Total News, Inc ., the defendants were publishers of Web sites offering hundreds of links to news organizations, incorporating framing technology to ensure that the defendant’s own logos and commercial advertising remain onscreen when users activate their links to the external news sites. Plaintiffs alleged, among other things, copyright infringement, dilution of their trademarks, unfair competition, misappropriation of their intellectual property and interference with their relationship to advertisers. Total News recently settled, agreeing that it would discontinue framing of all Web sites owned by the plaintiffs and of any Web pages that carry the plaintiff’s news content.

Although it is worth noting that the plaintiffs in the Washington Post case are not objecting to linking per se , but only to the partial linking employed by the defendants, the practice of linking to other bodies of information in and of itself also entails potential risks. Although establishing a link does not require the consent of the owner of the site linked to, it is possible that the particular linking activity may still violate laws. For example, the owner of the site could be liable for a link which incorporates text or graphical materials protected by trademark and/or copyright laws or which connects to a page containing actionable material, as well as being liable for claims of unfair competition and false sponsorship.

Ticketmaster recently sued Microsoft for “deep linking” the Ticketmaster web site. This allowed viewers who accessed the site through the Microsoft “Seattle Sidewalk” site to bypass the Ticketmaster homepage, which featured advertisements by Mastercard, and go directly to the point of purchase. Ticketmaster asserts that Microsoft has diluted the value of Ticketmaster’s business relationship with Mastercard. Ticketmaster contends that its mere presence on the “Seattle Sidewalk” page gives Microsoft a “free ride” and that Ticketmaster should be entitled to share in the enhanced advertisement revenue generated from that page. The outcome of this pending case is likely to provide needed guidance on the legal limits to the practice of linking.

Planning

Many of the recent cases highlight the fact that despite the novel issues presented by the Internet, courts are likely to apply existing legal doctrines to online advertising rather than create new ones. Traditional legal claims relating to print and broadcast media apply, such as copyright and trademark infringement, defamation and invasion of privacy. In personal jurisdiction cases where “minimum contacts” must be shown, courts have made analogies to known entities, likening e-mail to phone calls and surface mail, and Web sites to material print and broadcast advertisements.

Despite the uncertainty of the legal constraints in many areas involving online advertising, there are several steps one can take to minimize the risks. Would-be online advertisers should carefully consider the following actions before rushing into cyberspace:

  • Include trademark and copyright designations as well as other appropriate disclaimers on your site, warning of potentially prohibited material on a “legal page” with a link to it on the site’s home page.
  • Consider the use of a “choice of law/choice of courts” notice such as Netscape’s.
  • Investigate the sites you link to and consider the advisability of executing a linking agreement with owners of the linked-to sites.
  • Be cognizant of international legal considerations resulting from worldwide access to the Web.
  • Consult with legal counsel prior to advertising, especially advertising relating to regulated businesses, including lotteries and sweepstakes, alcohol and cigarettes, physician and attorney services and the securities industry.
  • Consider the advisability of obtaining insurance coverage for online advertising risks.

The legal landscape of online advertising is largely uncharted territory, and carelessness in this area could prove costly for the advertiser. At the very least, advertisers should closely screen and monitor all advertising materials made available online. Cyberspace offers not only a vast array of marketing and advertising possibilities but also a vast array of legal risks if caution is not used.