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Email, Marketing to Children, and Internet Tax Update

FTC Seeks Comments on CAN-SPAM Act and National Do Not Email Registry

The Federal Trade Commission issued an advance notice of proposed rulemaking and request for comments relating to certain provisions of the new CAN-SPAM Act and the possibility of establishing a national Do Not Email registry.  The FTC is seeking comments on the following issues: 

  • How to determine a commercial email’s primary purpose.  Under the CAN-SPAM Act, commercial email encompasses “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service.”  The FTC is required to issue regulations that will define the criteria to be used to determine the primary purpose of an email message. 

    The definition of “transactional or relationship messages.”  Most of the provisions of the CAN-SPAM Act apply to commercial email and not to “transactional or relationship messages.”  The Act lists several categories of messages that are considered transactional or relationship messages.  The FTC has the discretion to modify those categories due to changes in technology or practice.
  • The 10 business day period for honoring an opt-out request.  The FTC has the discretion to modify this provision and is seeking comments on whether it is reasonable to require senders to honor an opt-out request within 10 business days of receiving such a request.
  • Modifying the list of “aggravated violations.”  Under the Act, several activities, such as email address harvesting and identity theft, are considered aggravating activities and can lead to increased penalties.  The FTC is seeking comments on which activities, in any, should be added to the list of aggravated violations.
  • Implementing the Act.  The FTC has the discretion to issue regulations implementing the Act in general and is seeking comments specifically on:
    • Refer a friend programs – should the FTC adopt rules clarifying the legal obligations of initiators and recipients who forward messages at the inducement of a sender;
    • Multiple sender situation – should the FTC clarify the obligations of multiple senders (for example, an email message promoting an upcoming conference also includes ads from several companies sponsoring the conference);
    • Physical address requirement – does a P.O. box satisfy the requirement of providing the sender’s physical address in the email.

The Act also requires the FTC to prepare several reports over the next two years, and the FTC is seeking comments on

  • Establishing a system for rewarding those who supply information about CAN-SPAM violations;
  • The possibility of establishing a national Do Not Email registry;
  • The effectiveness of requiring labeling in the subject line of commercial email; and
  • The effectiveness of the CAN-SPAM Act.

Comments on the CAN-SPAM Act will be accepted until April 12, 2004, and comments on the Do Not Email registry will be accepted until March 31, 2004.

Marketing to Children

The FTC announced two new enforcement actions involving the Children’s Online Privacy Protection Act (COPPA).  Universal Music Group, which operates several hundred music related web sites, agreed to pay $400,000 in civil penalties for allegedly collecting personal information from children without first obtaining parental consent.  The penalty is the largest civil penalty under COPPA to date. 

The FTC also announced that Bonzi Software, distributor of BonziBUDDY software, agreed to pay civil penalties of $75,000.  This is the first case to challenge the information collection practices of an online service in connection with a software product; previous FTC COPPA cases involved web site operators’ information collection practices.  The FTC charged that the BonziBUDDY online registration form failed to provide notice to parents of what information it collected, failed to obtain verifiable parental consent, failed to post a clear and complete privacy notice, and failed to provide a reasonable means for parents to review the personal information collected from their children.  

Across town from the FTC, a U.S. Senator recently introduced the Children’s Listbroker Privacy Act (S. 2160) that would prohibit the sale of children’s personal information for commercial marketing purposes.  And in Utah, legislators are considering House Bill 165 which would create a “Child Protection Registry.”   The bill would allow parents to register email and instant message addresses and cell phone numbers that are accessible by minors to shield them from receiving advertisements for products or services that minors are not allowed to purchase, such as pornography, tobacco, liquor and gambling.  The registry would be free for consumers, but would require advertisers to pay a fee to obtain copies of the registry.  The bill provides for both civil and criminal penalties, including fines of up to $1,000 per message.

Guidelines for Email Appending

The Direct Marketing Association issued new guidelines for email appending, the practice of cross-referencing a consumer’s name with a third-party database to obtain the consumer’s email address.  The DMA suggests that a marketer should append a consumer’s email address to its database only when the consumer gives a marketer permission to add his or her email address to the marketer’s database or

  • there is an established business relationship with that consumer either online or offline; and
  • the email addresses provided by the third-party are from sources that provided notice and choice regarding the receipt of third-party email offers, and the email addresses do not belong to consumers who have opted out of receiving such communications; and
  • the marketer makes reasonable efforts to ensure the accuracy of appending email addresses to consumer records.

The DMA's Guidelines further provide that a marketer should not sell, rent, transfer or exchange an appended email address of a consumer unless it first offers notice and choice to the consumer, and all messages to an email appended address should include a notice and choice to continue to communicate via email.  Marketers should have in place appropriate record keeping systems to ensure compliance with these guidelines.

New California Commercial Email Bill

A California legislator has introduced a bill that would clarify California’s law on commercial email.  California’s previous commercial email bill, S. 186, was enacted but most of it was pre-empted by the federal CAN-SPAM Act.  The new bill, S. 1457, clarifies that commercial email advertisements include both solicited and unsolicited advertisements, commercial email that is sent from California or to a California email address and that contains falsified or misleading information is prohibited, and collecting email addresses or registering multiple email accounts in order to send unsolicited commercial email is prohibited.  Unlike CAN-SPAM, the new bill also makes clear that individuals, as well as ISPs and the state attorney general, can file suit to enforce these provisions; whether these provisions can withstand a challenge based on a pre-emption argument remains to be seen.

Bill to Revive and Extend Internet Tax Freedom Act

U.S. Senator Lamar Alexander introduced a bill (S. 2084) to revive and extend the Internet Tax Freedom Act which expired November 1, 2003.  The Act prohibited states from imposing a tax on Internet access charges and from imposing multiple or discriminatory taxes on Internet transactions.  However, the Act does not prevent states from collecting taxes on Internet transactions when the seller has a physical presence in the state.

This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.