MonsterHut Decision: Weapon of Mass Destruction?

The court agreed with the attorney general that MonsterHut violated New York's law prohibiting deceptive practices when the company falsely told consumers in e-mails and on its Web site that its e-mails were sent to addresses obtained using 'permission-based' protocols, and that consumers had received such e-mails because they 'opted-in.'

MonsterHut obtained consumers' e-mail addresses through partnerships with Web-based companies that offer incentives in exchange for obtaining consumers' permission to use their e-mail addresses for marketing purposes. It argued that in making opt-in and permission-based representations to e-mail recipients, the company relied on the representations of third-party Web site operators that all the e-mail addresses MonsterHut received were obtained using opt-in protocols.

But the court found that at least some of the e-mail addresses were gathered using an opt-out approach, and held that reliance on third-party representations was no defense to the attorney general's allegations.

The court granted the attorney general's request that MonsterHut be permanently enjoined from making any misrepresentations regarding whether its e-mails are permission-based or whether consumers opted in to receive the company's e-mails. The court also pondered the attorney general's request on Feb. 11 for civil penalties of up to $500 per deceptive e-mail and restitution to consumers. That request is now pending.

Effect on the law

The decision will have a few logical impacts.

1. Opt-in and permission-based representations require affirmative act of consumers. For now, New York regulators and those in states with regulations like New York General Business Law 349 and 350 can assume permission-based and opt-in mean consumers must agree to receive e-mails before third parties can claim in those e-mails that consumers opted in or that the e-mail is permission-based. What remains unclear is what consumers must agree to receive. That is, the MonsterHut decision doesn't tell e-mail marketers whether it is sufficient for consumers to have agreed to receive promotional e-mail communications from third parties whose products and services designers of a Web site think consumers may like (broad standard), or whether consumers must agree to receive specific types of e-mails from specific entities (very narrow standard for defining 'opt-in').
2. Due diligence is necessary when relying on third parties' representations. Whatever the standard ultimately is for an 'opt-in,' the MonsterHut decision makes clear that accepting third-party partners' representations about the nature of consumers' consent is insufficient. Based on the court's reasoning, it appears this reasoning applies to representations in contracts too. In other words, according to the New York trial judge who decided MonsterHut, it may not be enough for an e-mail marketer to require that its list sources represent and warrant that consumers have opted in in a formal, written contract.
3. Application beyond opt-in and permission-based representations. At first blush, compliance with the MonsterHut decision seems relatively easy: Don't claim e-mails are permission-based unless it's established that consumers who will receive the e-mails took affirmative action to signal agreement to receive the e-mail.

   What is now unclear is how this decision will affect state regulators' interpretation of their anti-spam laws, which regulate 'unsolicited' commercial e-mail. If they rely on the MonsterHut decision for the proposition that an e-mail is 'unsolicited' unless it is opt-in, then e-mail marketers who cannot prove how ' and based on which representations ' a consumer 'opted-in' face a prisoner's dilemma. If the marketer takes the position that it is not regulated by the state spam laws, then it risks being sued by a regulator arguing that an e-mail is unsolicited unless the marketer can show that all consumers who received the e-mail affirmatively agreed to receive it from this marketer. On the other hand, if the e-mail marketer takes the no-risk approach of complying with the state spam laws, many of which mandate ADV: in the subject line, then virtually all Internet service providers (ISPs) will block the e-mail, and its campaign will fail.

4. Effect on the list industry. The MonsterHut decision is a wake-up call for e-mail marketers and the list industry. E-mail marketers should (and will) start asking their sources for specific information on how e-mail addresses are collected. They will want to see pages where consumers provide their e-mail addresses so that the marketers can see for themselves what action the consumers had to take to get added to the list. The more specific the consent, the more marketable efforts stemming from that consent will be. They will also want to see date- and time-stamped logs showing this affirmative consent for each e-mail address collected. They will also want to know how the owner complies with opt-out requests. The demand for this information will trickle down to list brokers, who will demand it of owners or their list marketers.

But the problem is the industry doesn't work vertically (ie, list owner, list marketer, list broker, list user) ' at least not always. List marketers often trade or barter lists with one another, the result being that marketers end up with their own compiled lists of e-mail addresses gathered from dozens of sources. There is no way the list marketer ' or anyone ' can say for sure how, or based on what representations, the e-mail addresses were originally collected.

The list industry should view the MonsterHut decision as a sign that business as usual is under scrutiny. The law ' and the market ' is providing incentives for marketers and their list sources to know how, and based on what representations, names and contact information are collected, and for those representations to be as specific as possible regarding the types of e-mail consumers agree to receive ” and the parties who will send the e-mail. Companies that can provide such information about their lists are well positioned to take advantage of this trend.

D. Reed Freeman Jr. is a partner in the competition group of Collier Shannon Scott in Washington, DC. He counsels clients on a wide range of consumer-protection issues, including privacy, information security, advertising and consumer-credit law.

Earlier this year, a New York trial judge issued the first written opinion on the meaning of the terms permission based and opt-in in the context of e-mail marketing.

The decision arose from a lawsuit filed by New York Attorney General Elliott Spitzer ' increasingly seen as the most aggressive attorney general in the country ' against MonsterHut, a leading e-mail marketer, and its two individual principals.

What the Court Held

The court agreed with the attorney general that MonsterHut violated New York's law prohibiting deceptive practices when the company falsely told consumers in e-mails and on its Web site that its e-mails were sent to addresses obtained using 'permission-based' protocols, and that consumers had received such e-mails because they 'opted-in.'

MonsterHut obtained consumers' e-mail addresses through partnerships with Web-based companies that offer incentives in exchange for obtaining consumers' permission to use their e-mail addresses for marketing purposes. It argued that in making opt-in and permission-based representations to e-mail recipients, the company relied on the representations of third-party Web site operators that all the e-mail addresses MonsterHut received were obtained using opt-in protocols.

But the court found that at least some of the e-mail addresses were gathered using an opt-out approach, and held that reliance on third-party representations was no defense to the attorney general's allegations.

The court granted the attorney general's request that MonsterHut be permanently enjoined from making any misrepresentations regarding whether its e-mails are permission-based or whether consumers opted in to receive the company's e-mails. The court also pondered the attorney general's request on Feb. 11 for civil penalties of up to $500 per deceptive e-mail and restitution to consumers. That request is now pending.

Effect on the law

The decision will have a few logical impacts.

1. Opt-in and permission-based representations require affirmative act of consumers. For now, New York regulators and those in states with regulations like New York General Business Law 349 and 350 can assume permission-based and opt-in mean consumers must agree to receive e-mails before third parties can claim in those e-mails that consumers opted in or that the e-mail is permission-based. What remains unclear is what consumers must agree to receive. That is, the MonsterHut decision doesn't tell e-mail marketers whether it is sufficient for consumers to have agreed to receive promotional e-mail communications from third parties whose products and services designers of a Web site think consumers may like (broad standard), or whether consumers must agree to receive specific types of e-mails from specific entities (very narrow standard for defining 'opt-in').
2. Due diligence is necessary when relying on third parties' representations. Whatever the standard ultimately is for an 'opt-in,' the MonsterHut decision makes clear that accepting third-party partners' representations about the nature of consumers' consent is insufficient. Based on the court's reasoning, it appears this reasoning applies to representations in contracts too. In other words, according to the New York trial judge who decided MonsterHut, it may not be enough for an e-mail marketer to require that its list sources represent and warrant that consumers have opted in in a formal, written contract.
3. Application beyond opt-in and permission-based representations. At first blush, compliance with the MonsterHut decision seems relatively easy: Don't claim e-mails are permission-based unless it's established that consumers who will receive the e-mails took affirmative action to signal agreement to receive the e-mail.

   What is now unclear is how this decision will affect state regulators' interpretation of their anti-spam laws, which regulate 'unsolicited' commercial e-mail. If they rely on the MonsterHut decision for the proposition that an e-mail is 'unsolicited' unless it is opt-in, then e-mail marketers who cannot prove how ' and based on which representations ' a consumer 'opted-in' face a prisoner's dilemma. If the marketer takes the position that it is not regulated by the state spam laws, then it risks being sued by a regulator arguing that an e-mail is unsolicited unless the marketer can show that all consumers who received the e-mail affirmatively agreed to receive it from this marketer. On the other hand, if the e-mail marketer takes the no-risk approach of complying with the state spam laws, many of which mandate ADV: in the subject line, then virtually all Internet service providers (ISPs) will block the e-mail, and its campaign will fail.

4. Effect on the list industry. The MonsterHut decision is a wake-up call for e-mail marketers and the list industry. E-mail marketers should (and will) start asking their sources for specific information on how e-mail addresses are collected. They will want to see pages where consumers provide their e-mail addresses so that the marketers can see for themselves what action the consumers had to take to get added to the list. The more specific the consent, the more marketable efforts stemming from that consent will be. They will also want to see date- and time-stamped logs showing this affirmative consent for each e-mail address collected. They will also want to know how the owner complies with opt-out requests. The demand for this information will trickle down to list brokers, who will demand it of owners or their list marketers.

But the problem is the industry doesn't work vertically (ie, list owner, list marketer, list broker, list user) ' at least not always. List marketers often trade or barter lists with one another, the result being that marketers end up with their own compiled lists of e-mail addresses gathered from dozens of sources. There is no way the list marketer ' or anyone ' can say for sure how, or based on what representations, the e-mail addresses were originally collected.

The list industry should view the MonsterHut decision as a sign that business as usual is under scrutiny. The law ' and the market ' is providing incentives for marketers and their list sources to know how, and based on what representations, names and contact information are collected, and for those representations to be as specific as possible regarding the types of e-mail consumers agree to receive ” and the parties who will send the e-mail. Companies that can provide such information about their lists are well positioned to take advantage of this trend.

D. Reed Freeman Jr. is a partner in the competition group of Collier Shannon Scott in Washington, DC. He counsels clients on a wide range of consumer-protection issues, including privacy, information security, advertising and consumer-credit law.